Short answer
An adjustable-rate mortgage (ARM) starts with an interest rate that's fixed for a set period, often 5, 7 or 10 years. After that, the rate adjusts on a schedule: it's reset to an index, such as the average SOFR, plus a fixed margin, and caps limit how much it can change at each adjustment and over the life of the loan. Your payment can go up or down when the rate changes.
What are the parts of an ARM?
- Initial fixed period: the years before the first adjustment. A 7/6 ARM, for example, is fixed for seven years, then adjusts every six months.
- Index: a published market rate the ARM follows. Many ARMs today use the 30-day average SOFR.
- Margin: a set amount added to the index. It stays the same for the life of the loan.
- Caps: limits on how much the rate can change at the first adjustment, at each later adjustment, and over the whole loan.
Who might an ARM fit?
An ARM may fit if you expect to sell or refinance before the fixed period ends, for example if you plan to move for work in a few years, or if you're buying a starter home. It can carry more risk if you plan to stay long-term and your budget couldn't handle a higher payment later. Compare it side by side with a fixed rate before you decide. See compare loan programs.
How do I see the worst case?
Your Loan Estimate shows how the rate and payment can change: the Adjustable Interest Rate table lists the index, margin, caps and the highest possible rate, and the Projected Payments section shows payment ranges over time. Make sure you could live with the highest payment it shows. See how to read a Loan Estimate.
Is qualifying different for an ARM?
Often, yes. For ARMs with shorter fixed periods, lenders usually qualify you at a higher rate than the starting one, so the payment you qualify on may be higher than your first payment. Rules differ by program and lender.
What if rates fall or rise?
If rates fall, the ARM may adjust down after the fixed period, or you can refinance. If rates rise, the caps limit how fast your rate can climb. Either way, keep an eye on the date of your first adjustment; see when to refinance and what affects mortgage rates.
Sources
Checked November 2, 2026. Rules and dates change, so confirm current details before you rely on them.
General information only, not tax or legal advice. Program availability, eligibility and terms vary by lender and are subject to change and to underwriting approval. Not a commitment to lend.