Should You Get An Adjustable-Rate Mortgage?

With mortgage rates holding steady at high levels and home prices continually setting new records, adjustable-rate mortgages, or ARMs, are looking more appealing. This type of mortgage can be a more affordable means to get into a home, especially as higher rates on fixed mortgages price some borrowers out.

You might be wondering, then: Should I get an adjustable-rate mortgage? Here’s some guidance to help you determine if this type of mortgage is right for you.

Why some borrowers are considering ARMs right now

Adjustable-rate mortgages usually come with lower fixed interest rates for an initial period. That’s especially appealing in today’s housing market where higher fixed rates — 30-year mortgages have hovered in the 7 percent range for much of 2025 — translate to less purchasing power.

“Potential homebuyers are finding ways to reduce their monthly payments and view ARMs as more attractive given the widening spread between rates for ARM and fixed-rate loans,” says Joel Kan, vice president and deputy chief economist at Mortgage Bankers Association (MBA).

When the MBA analyzed mortgage applications at the halfway mark of the year, ARMs made up 7.8 percent of all mortgage applications — a sizable jump from the 4.7 percent share they accounted for at the start of 2025.

Is an ARM loan a good idea right now?

An ARM is essentially a bet on the future of mortgage rates. If you think mortgage rates will be lower in a few years, an ARM can let you cash in by allowing your rate to move lower once the fixed-rate period ends.

The big question on everyone’s mind, however, is when rates will actually come down in a meaningful way. “Mortgage rates are the magic bullet, and we’re waiting and waiting until those come down,” Lawrence Yun, chief economist at the National Association of Realtors, said at the NAR 2025 Realtors Legislative Meetings in June.

In terms of deciding whether or not an ARM is a good idea, it’s all about where you think rates will be when your fixed-rate period ends — typically in three, five or seven years. However, predicting rates that far into the future is quite difficult. If you’re not willing to take on this uncertainty, consider sticking with a fixed-rate mortgage.

Who is an adjustable-rate mortgage best for?

A lower monthly mortgage payment sounds like a no-brainer, but ARMs are risky, and they’re not a fit for every borrower. As you weigh the pros and cons, here are some situations when an ARM is a good idea:

• You’re not buying your forever home. ARMs typically have fixed-rate introductory periods of three, five, seven or 10 years, so they “can make sense for a borrower with plans for a shorter time frame in their new home of five to 10 years, where they would likely sell before their rate resets,” says Kan.
• You’re comfortable with the risk. If you’re set on buying a home now with a lower payment to start, you might simply be willing to accept the risk that your rate and payments could rise down the line, whether or not you plan to move. “A borrower might perceive that the monthly savings between the ARM and fixed-rates is worth the risk of a future increase in rate,” says Pete Boomer, head of mortgage at Regions Bank.
• You’re borrowing a jumbo loan. Many lenders promote the value of opting for an adjustable-rate mortgage if you’re looking to borrow a larger amount of money for a more expensive home. By securing a lower rate in the early repayment days, you may be able to afford a bigger property comfortably.
• You’re able to make extra payments in the introductory period. If you have room in your budget to pay extra toward the loan principal during the initial rate period, a lower-rate ARM can help you maximize those interest savings. (Bankrate’s additional mortgage payment calculator can help you weigh different scenarios.)

The risks of ARMs

While ARMs have staged a comeback in recent years, don’t let that uptick in popularity fool you into thinking they’re easy to get. You’ll need a higher down payment of at least 5 percent, versus 3 percent for a conventional fixed-rate loan.

There’s also the need to verify that your current financial situation allows for a higher payment down the road — even if you plan to move before the lower-rate period ends.

“Most ARM loans now are underwritten based on the highest payment expected on the loan to ensure the borrower can handle the payment shock from a rate increase,” says Kan. “Many other factors come into play, such as rates over the longer five- to 10-year horizon, the borrowers’ income and employment situation, housing market conditions that impact their ability to refinance or sell (if necessary) when their fixed period expires and more.”

That “if necessary” piece underscores the primary risk with ARMs: It’s impossible to predict the future. What if you’re nearing the end of the introductory period and lose your job? What if your plan to sell the home gets derailed by a market downturn? Nothing in life is certain, so if you need a stable monthly payment — or simply can’t tolerate any level of risk — it’s best to go with a fixed-rate mortgage, despite the expense.

Types of ARMs to consider

If you’re perusing ARMs, you’ll want to ask yourself two key questions. First, how long do you want a period of stability where the rate doesn’t change? And second, how often do you want the rate — and your monthly payment — to reset? Here’s a rundown of the most common adjustable-rate mortgages and how they work:

• 3/1 or 3/6 ARM – You’ll have an introductory rate for three years, followed by annual or six-month rate resets. Since you’re only getting the fixed rate for a short time, that rate might be the lowest ARM rate you find. 3/1 ARMs aren’t as common as other kinds of ARMs, however. These loans are best for people who only plan to be in the house temporarily or have an imminent uptick in income (e.g., are finishing a degree or awaiting a promised promotion).
• 5/1 or 5/6 ARM – The 5/1 is the most common type of adjustable-rate mortgage, which comes with a fixed rate for five years before resetting once every year. A 5/6 comes with the same five-year period of stability prior to a rate that resets every six months.
• 7/1 or 7/6 ARM – You’ll have a fixed rate for seven years, then pay a new rate (either higher or lower) every year or six months. This might be a good option if you want more years of fixed payments and are willing to take on a slightly higher rate than the more popular 5/1 or 5/6 ARM.
• 10/1 or 10/6 ARM – These adjustable-rate loans offer the longest period of stability: a full decade of fixed-rate, predictable payments, followed by annual or six-month adjustments. Since you’re getting 10 years of the same payments, the introductory rate usually isn’t as competitive as rates on shorter ARMs. This type of ARM is best for people who want to get a lower rate than a fixed-rate loan, but want to minimize risk as much as possible.

Most ARMs have caps on how much the rate can increase in one year (or whatever the interval is), along with a lifetime cap that limits the amount it can increase throughout the loan’s term. You can use Bankrate’s adjustable-rate mortgage calculator to estimate whether you’d be able to shoulder the largest possible monthly payment based on your lifetime cap.

FAQ

• If I get an ARM, when should I consider refinancing to a fixed-rate mortgage?
  

  If rates come down, refinancing can lock you in at that lower rate. Even if rates aren’t favorable, it may make sense to refinance into a fixed-rate loan and eliminate unpredictability from your mortgage payments.

• Can you pay off an ARM mortgage early?
  

  Yes, but your lender might charge a prepayment penalty. Note that with an ARM, making bigger-than-necessary payments won’t shorten your loan term. Instead, your lender recalculates your monthly payment based on how much you have left to repay at each rate reset. Paying extra lowers your monthly dues in the future, but it won’t move you toward early payoff.

• What are the potential financial benefits of ARMs?
  

  An adjustable-rate mortgage may come with a lower introductory interest rate, which can provide smaller monthly payments for the first few years of the loan. Additionally, depending on how the market looks when your rate is due to reset, there’s a chance it could decrease.