A low rate now, in exchange for uncertainty later
An ARM trades the certainty of a fixed rate for a lower one at the start. Whether that is a good trade comes down to one question: how long will you actually be in the home?
5/1
Fixed five years, then adjusts yearly
3/3
Fixed three years, then adjusts every three
Capped
A ceiling limits how high your rate can go
Is it right for you
The question is how long you are staying
You may want to purchase a new home while knowing that you will be moving to a new location within a few short years. That is the situation an adjustable rate mortgage is built for.
In that case you can be assured of low interest rates during the first few years of your mortgage, which may be all that you require, since you will not be living in the home for an extended period. The years where the rate moves around are years that belong to somebody else.
“If you are gone before the rate starts adjusting, you got the low rate and skipped the risk.”
The definition
What the numbers in a 5/1 ARM mean
A mortgage with adjustable rates is a loan arrangement where the interest amount is not fixed the way it is on a conventional loan. It will most likely change at a predetermined time.
The pair of numbers tells you the whole schedule. The first is how many years your rate stays fixed. The second is how often it adjusts after that. Most of those changes come from fluctuations in either the prime rate or the Treasury Bill rate.
Two less common variants are worth knowing by name. A two-step ARM adjusts once, then stays fixed for the rest of the term. A convertible ARM lets you switch to a fixed rate during a set window, usually for a fee. Neither is standard, so ask before assuming your loan includes either.
5/1 year ARM
A fixed rate for the first five years of the loan, then it adjusts annually each year after that.
3/3 year ARM
A fixed rate for the first three years, then it adjusts every three years after that.
How it behaves
What you gain, and what protects you
An ARM has one clear advantage and one built-in safeguard. Both are worth understanding before you weigh it against a fixed rate.
A low rate at the start
The main advantage of taking out an adjustable rate mortgage is securing a low mortgage rate. That lower rate applies through the whole opening fixed period, whether that is three years or five.
A ceiling on the increase
You are protected by a maximum interest rate increase, or ceiling. That is the highest level your rate can be adjusted to. It is usually reset on a yearly basis, so the final figure may end up either higher or lower than the one you expected.
Adjustments follow the market
Your rate is not adjusted at your lender's discretion. Changes track fluctuations in the prime rate or the Treasury Bill rate, so movements are tied to something outside the loan.
The risk
Nobody can tell you what year six costs
There is no guaranteed rate curve for an adjustable rate mortgage. Your lender may fix the rate for the first few years, but at a certain point the rate you pay will fall in line with the national prime rate.
From that point on, the rate you are charged may fluctuate quite a bit over the remaining life of the agreement. That is the real trade. You are accepting a payment that can move in exchange for a lower one now, and the ceiling limits how far it moves without eliminating the movement.
An Honest Comparison
How does an ARM compare to a fixed rate?
The choice is really about certainty. An ARM buys you a lower rate at the start by handing you the risk of what comes later. A conventional fixed rate does the opposite.
| Feature | Adjustable Rate | Conventional Fixed |
|---|---|---|
| Interest rate | Fixed for an opening period, then adjusts on a schedule | Fixed for the entire life of the loan |
| Rate at the start | Lower — the main advantage of the program | Higher than an ARM's opening rate |
| Payment predictability | Predictable until the fixed period ends, then it can move | The payment you sign for is the payment you keep |
| What drives changes | Fluctuations in the prime rate or the Treasury Bill rate | Nothing — the rate does not change |
| Protection | A ceiling caps how high the rate can be adjusted to | No ceiling needed |
| Best for | Buyers who expect to move before the fixed period ends | Buyers staying long term, or who need a payment that never moves |
See the conventional loan page for the fixed-rate side in full. If your loan is above the conforming limit, the jumbo loan page covers both fixed and adjustable options, and an advisor can run the numbers both ways for your situation.
Questions
ARM questions we hear most
An adjustable rate mortgage, or ARM, is a loan where the interest amount is not fixed the way it is on a conventional loan. Instead it will most likely change at a predetermined time.
The rate stays fixed for an opening period, then begins adjusting on a set schedule for the rest of the term. Most of those changes come from fluctuations in either the prime rate or the Treasury Bill rate.
Want to see the numbers both ways?
We will run a fixed rate and an ARM side by side, including what the payment looks like at the ceiling, so the trade is something you can see rather than guess at.
Let's Weigh It Together
Your Phoenix mortgage lender
An ARM is neither the bargain nor the trap it is sometimes made out to be. It is a trade, and whether it works for you depends almost entirely on how long you will hold the loan.
We can help you understand both the advantages and the risks involved in this type of loan. Give our office a call and let us take a look at your options together.
A track record you can verify
2026 Scotsman Guide Top Originator
James Vercellino was listed among Scotsman Guide's 2026 Top Originators.