QandAs: Loans

What is a 5/1 ARM?

Answer:
A 5/1 ARM is a common mortgage loan that combines features on a fixed rate loan with an adjustable rate mortgage.

Borrowers choose an adjustable rate for various reasons. Since mortgage rates and home prices continue to rise, an adjustable rate mortgage can help keep the costs low.

Unfortunately, these loans are unpredictable because rates can rise or fall with each adjustment. Individuals who select a 5/1 ARM option can take advantage of a low fixed rate for the first five years of the loan. After five years, the interest rate will adjust to a current market rate. Rate adjustments occur on a yearly basis, and may be higher or lower than the previous rate.


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