The Complete Guide to ARM Loans

What Is an ARM?

An adjustable-rate mortgage, or ARM, has an introductory interest rate that lasts a set period of time and adjusts annually thereafter for the remaining time period. After the set time period your interest rate will change and so will your monthly payment.


  • 10/1 ARM: Your interest rate is set for 10 years then adjusts for 20 years.
  • 7/1 ARM: Your interest rate is set for 7 years then adjusts for 23 years.
  • 5/1 ARM: Your interest rate is set for 5 years then adjusts for 25 years.
  • 3/1 ARM: Your interest rate is set for 3 years then adjusts for 27 years.

General Advantages and Disadvantages

The initial interest rates for adjustable rate mortgages are normally lower than a fixed rate mortgage, which in turn means your monthly payment is lower. If you only plan to stay in your home for a short period of time, an ARM loan might be advantageous to you because you plan on moving or selling your home before your initial mortgage rate adjusts. If you expect your income to increase in the future, you might feel comfortable with the idea of saving money now by having a lower monthly payment but be comfortable with having to make higher payments in the future when your income rises and your ARM adjusts.

ARMs are generally considered riskier because your interest rate will probably go up after the initial fixed-rate period ends.

What Happens When My ARM Loan Adjusts?

You can determine how much your ARM’s interest rate is going to increase or decrease after the initial fixed-rate period ends based upon the index and margin it is tied to. The index value is variable while the margin value is constant throughout the lifetime of the loan.

An index is a benchmark variable interest rate that is published regularly and available publicly. Typical index rates that are associated with ARMs are LIBOR (London Interbank Offered Rate), COFI (11 District Cost of Funds), T-Bill (U.S. Treasury Bill) and CMT (Constant Maturity Treasury), etc. A margin is a fixed percentage rate that you add to your index rate to obtain the fully indexed rate for an adjustable-rate mortgage. Margin rates can often be negotiated with your lender.

Example: If you index rate is 3 percent and your margin is 2 percent, then your fully indexed interest rate would be 5 percent.

On Zillow, ARM details are specifically broken down for each of your individualized ARM mortgage quotes.

We highlight how long the rate is fixed, the initial interest rate, the index type, the margin, the initial cap, the periodic cap and the lifetime cap. We also tell you how much you should expect your payment to increase after your initial fixed-rate period ends.

Shop for an ARM

Shop for real time, customized ARM quotes on Zillow now. Our lenders currently offer 7/1, 5/1 and 3/1 ARMs.

Tip: Make sure to expand the loan request form by clicking the “advanced” hyperlink and indicate that your desired loan program is an ARM.