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Viral Shah (Better Mortgage’s Head of Capital Markets) explains how an adjustable-rate mortgage works.

Choosing a mortgage type is one of the many decisions a homebuyer needs to make – and it’s a big one. After the 2008 housing crisis, many buyers were wary of adjustable rate mortgages (ARMs). But in instances where you’re planning on selling your home within 10 years, they could be the better option.

Here’s a quick overview of what an adjustable rate mortgage is:

How do ARMs work?

While traditional fixed rate mortgages have the same rate for the entire life of the loan (typically 15, 20, or 30 years), adjustable rate mortgages (ARMs) are a bit different. ARMs have an initial fixed period where you will pay a fixed interest rate, followed by an adjustable period where the interest rate fluctuates. Current conforming ARMs use an index rate called the Secured Overnight Financing Rate (SOFR) to guide these adjustments.

Naming: (Fixed period in years / number of adjustments per year). For example, 10/6m means 10 year fixed with adjustments every 6 months after that.

Fixed period: You’ll choose from a 5-year, 7-year, or 10-year fixed period, typically based on how long you expect to live in the house. After the fixed period, the rate adjusts twice per year (every 6 months).

Adjustable period: After the fixed period is over, the rate will adjust every 6 months based on the following formula: 30 day average of SOFR (Index) + (Margin). Investors set the value of the margin but it is typically between 2.75% and 3%. Regardless of what value is used, the margin always stays the same, but the value of the SOFR index will vary. The SOFR index is maintained by the New York Federal Reserve and can be accessed directly on the NY Fed website or on sites like the Wall Street Journal and its value changes daily. As of 2/22/2021, the 30-day average SOFR was 0.045%, which would mean your ARM loan interest rate could be .045% (Index) + (Margin) or between 2.795% and 3.045%.

How much can the rate move?

ARMs have “caps,” which limit the amount that the rate can increase. This protects you against sharp moves if you move into the adjustable period.

Initial Adjustment Cap: The most the total rate can increase by in the first adjustment period. Typically 2% for 5/6m ARMs and 5% for 7/6m or 10/6m ARMs.

Subsequent Adjustments Cap: The most the total rate can increase by in subsequent adjustments periods. Typically 1%.

Lifetime Adjustment Cap: The most the rate can increase above the initial fixed rate — ever. Typically 5%.

For example: If your initial 5/6m ARM fixed rate was 3%, once the fixed period is over, it can’t increase more than 4% every year, nor can it ever exceed 8% in total.

Example rates based on the current interest rate environment:

Example Rates Based on the Current Rate Interest Environment

This table is for illustrative purposes only.

At Better Mortgage, we recommend considering an ARM only if you’re reasonably certain you’re going to sell your house in 10 years or less: here’s why.

If you’re curious about what ARM rates are like today, take a look at our Rate Quote Tool. We’re here to help you figure out which option is right for you.

This blog is for informational purposes only and should not be used for legal or financial advice.

Top 16 what is a 10/6 arm edit by Top Q&A

10 6mos ARM – SEFCU Mortgage Services

  • Author: sefcumortgageservices.com
  • Published Date: 12/22/2022
  • Review: 4.95 (927 vote)
  • Summary: For a 10/6mos ARM the rate is fixed for the first 10 years providing you the security of knowing your mortgage payment will remain the same during that time.

[PDF] Standard ARM Plan Matrix Contents – Fannie Mae

  • Author: singlefamily.fanniemae.com
  • Published Date: 01/26/2022
  • Review: 4.76 (543 vote)
  • Summary: Product Names for Whole Loan ARM Plans in Pricing Execution – Whole Loan® . … 7/6 m SOFR ARM Plan 4928. 4929. 10/6 m SOFR ARM Plan 4929.

How ARM rates work: 3/1, 5/1, 7/1 and 10/1 mortgages

  • Author: themortgagereports.com
  • Published Date: 10/20/2022
  • Review: 4.39 (576 vote)
  • Summary: Almost all ARM loans today are “hybrid ARMs.” These have an initial period of 3-10 years where the interest rate is fixed. In fact, these …

10/6 Month ARM – GTE Financial

  • Author: gtefinancial.org
  • Published Date: 07/12/2022
  • Review: 4.3 (570 vote)
  • Summary: 10/6-month ARM. This is an Adjustable Rate Mortgage; however, it’s different than a typical ARM in that your Annual Percentage Rate will stay the same for …

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Adjustable-Rate Mortgages (ARM) – Midland States Bank

  • Author: midlandsb.com
  • Published Date: 03/20/2022
  • Review: 3.91 (556 vote)
  • Summary: Get lower initial interest rates and monthly payments than a fixed-rate mortgage with an ARM loan. Apply for an ARM. dollar sign icon. Loan Options. 7/6 or 10/6 …
  • Matching search results: While traditional fixed rate mortgages have the same rate for the entire life of the loan (typically 15, 20, or 30 years), adjustable rate mortgages (ARMs) are a bit different. ARMs have an initial fixed period where you will pay a fixed interest …

ARM Mortgage Calculator | UniBank

  • Author: unibank.com
  • Published Date: 11/27/2022
  • Review: 3.68 (316 vote)
  • Summary: UniBank’s Adjustable Rate Mortgage (ARM) Calculator helps you easily determine … 10/6 month ARM, Fixed for 120 months, adjusts every six months for the …
  • Matching search results: While traditional fixed rate mortgages have the same rate for the entire life of the loan (typically 15, 20, or 30 years), adjustable rate mortgages (ARMs) are a bit different. ARMs have an initial fixed period where you will pay a fixed interest …

Adjustable-rate mortgage loans | ARM rates – U.S. Bank

  • Author: usbank.com
  • Published Date: 12/22/2022
  • Review: 3.54 (473 vote)
  • Summary: Get a competitive rate on an adjustable-rate mortgage loan (ARM) from U.S. Bank.
  • Matching search results: While traditional fixed rate mortgages have the same rate for the entire life of the loan (typically 15, 20, or 30 years), adjustable rate mortgages (ARMs) are a bit different. ARMs have an initial fixed period where you will pay a fixed interest …

What is a 10/1 adjustable-rate mortgage (ARM)?

  • Author: bankrate.com
  • Published Date: 11/20/2022
  • Review: 3.25 (266 vote)
  • Summary: A 10/1 ARM is a common type of 30-year adjustable-rate mortgage. … A 10/6 ARM, for example, adjusts every six months after the initial …
  • Matching search results: A 10/1 ARM is a hybrid mortgage – that is, a mortgage with a fixed period and a variable period. For the first 10 years, you will always pay the same interest rate on your mortgage. After that, your rate can fall or rise, depending on the general …

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Adjustable-Rate Mortgage Loans (ARMs) from Bank of America

  • Author: bankofamerica.com
  • Published Date: 12/02/2022
  • Review: 3.13 (514 vote)
  • Summary: With an adjustable-rate mortgage (ARM), your interest rate may change periodically. Compare adjustable-rate mortgage options and rates, including 5y/6m, …
  • Matching search results: A 10/1 ARM is a hybrid mortgage – that is, a mortgage with a fixed period and a variable period. For the first 10 years, you will always pay the same interest rate on your mortgage. After that, your rate can fall or rise, depending on the general …

Fixed-Rate vs. Adjustable-Rate Mortgages: What&39s the Difference?

  • Author: investopedia.com
  • Published Date: 07/11/2022
  • Review: 2.94 (137 vote)
  • Summary: The initial interest rate on an adjustable-rate mortgage (ARM) is set below the market rate on a comparable fixed-rate loan, and then the rate rises (or …
  • Matching search results: A 10/1 ARM is a hybrid mortgage – that is, a mortgage with a fixed period and a variable period. For the first 10 years, you will always pay the same interest rate on your mortgage. After that, your rate can fall or rise, depending on the general …

Compare today&x27s 10-year ARM rates

  • Author: nerdwallet.com
  • Published Date: 06/08/2022
  • Review: 2.88 (140 vote)
  • Summary: A 10-year adjustable rate mortgage, also known as a 10/6 ARM or 10y/6m ARM, is an adjustable-rate mortgage (ARM) with an interest rate that is initially …
  • Matching search results: A 10/1 ARM is a hybrid mortgage – that is, a mortgage with a fixed period and a variable period. For the first 10 years, you will always pay the same interest rate on your mortgage. After that, your rate can fall or rise, depending on the general …

Stronger ARMs making a comeback

  • Author: grarate.com
  • Published Date: 12/27/2022
  • Review: 2.62 (183 vote)
  • Summary: Adjustable rate mortgages (ARMs) were popular in the mid-2000’s, … In a 10/6 ARM, for example, the “10” stands for 10 years of the initial …
  • Matching search results: Answered simply, ARMs never went anywhere. As we said, they were popular before the Great Recession of 2008-’09 as a way to start homeownership with a lower mortgage rate, and therefore lower monthly payments. Unfortunately, when the housing bubble …

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Adjustable-Rate Mortgages 101: How They Work and Why They Can Be a Cheaper Option

  • Author: thetruthaboutmortgage.com
  • Published Date: 10/14/2022
  • Review: 2.58 (54 vote)
  • Summary: Those older adjustable-rate mortgages were often option arms, which allowed for … 10/6 ARM: First adjustment after 10 years, then adjusts semi-annually
  • Matching search results: 1-month ARM: First adjustment after one month, then adjusts monthly6-month ARM: First adjustment after six months, then adjusts every six months1-year ARM: First adjustment after one year, then adjusts annually2/2 ARM: First adjustment after two …

10-year adjustable rate mortgage (ARM)

  • Author: rate.com
  • Published Date: 06/04/2022
  • Review: 2.47 (85 vote)
  • Summary: Similar to the 10/6 ARM, the 10/1 ARM is an adjustable-rate mortgage with an initial fixed-rate period of 10 years. Typically, this has meant that for these …
  • Matching search results: 1-month ARM: First adjustment after one month, then adjusts monthly6-month ARM: First adjustment after six months, then adjusts every six months1-year ARM: First adjustment after one year, then adjusts annually2/2 ARM: First adjustment after two …

How an Adjustable Rate Mortgage Works

  • Author: freeandclear.com
  • Published Date: 03/12/2022
  • Review: 2.42 (188 vote)
  • Summary: ARMs that adjust semi-annually, or every six months, are referred to as 3/6, 5/6, 7/6 and 10/6 ARMs. For example, the rate on a 5/6 ARM is fixed for the …
  • Matching search results: 1-month ARM: First adjustment after one month, then adjusts monthly6-month ARM: First adjustment after six months, then adjusts every six months1-year ARM: First adjustment after one year, then adjusts annually2/2 ARM: First adjustment after two …

What Is a 5/6 ARM Loan?

  • Author: moneytips.com
  • Published Date: 02/01/2022
  • Review: 2.37 (191 vote)
  • Summary: A 5/6 ARM loan is a mortgage loan with a fixed interest rate for the first five … You may qualify for a 5/5 ARM, a 7/6 ARM or a 10/6 ARM.
  • Matching search results: To calculate your new interest rate, which is called the “fully indexed rate,” the lender adds the index to the margin. If your margin is 2% (2 percentage points) and the index is 4%, you’ll pay a fully indexed rate of 6% in interest. Your lender …

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