What do the two numbers in 5/6 ARM mean?

The first is how many years the initial rate stays fixed — five. The second is how often it can adjust after that, in months — every six. A 7/6 ARM is fixed for seven years then adjusts every six months.

How is the new rate worked out at each adjustment?

Index plus margin, then bounded by the caps. The index is a published market rate that moves independently; the margin is a fixed number written into your note that never changes. Your lender does not choose the index value at adjustment, but it does choose the index, the margin and the caps when the loan is written.

Can I just refinance before it adjusts?

Often, but it is not something anyone can guarantee you. Refinancing depends on rates at that time, your credit and income then, and the property's value then. Treat it as a hope rather than a plan, and make sure the loan still works if the refinance does not happen.

Is an ARM cheaper than a fixed-rate loan?

It usually starts cheaper. Whether it ends up cheaper depends on how long you keep it and what rates do, neither of which is known in advance. The comparison table on this page sets out what actually differs between the two.

Does an ARM mean interest-only payments?

No. Those are separate features. Some ARMs have an interest-only period and most do not. If a loan has one, it should be stated plainly, because it changes how quickly you build equity.

Loan option

Adjustable-rate mortgages

An ARM starts at one rate for a fixed introductory period, then adjusts on a schedule for the rest of the term. The headline rate is the part people compare; the caps are the part that decides what you are actually exposed to.

Last updated 10 November 2026

Pathways

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In short

Usually worth looking at if

Borrowers who expect to sell or refinance before the first adjustment, and can afford the payment if they do not
Borrowers who can absorb the maximum payment the caps allow, not just the introductory one
Situations where the introductory period genuinely matches a known timeline, such as a fixed assignment or a planned move

Decided by the lender, not by us

Which index the loan uses, and the margin added to it
The initial, periodic and lifetime caps
The length of the introductory period, and how often it adjusts afterwards
Credit score, debt-to-income and reserve requirements

How it works

How adjustable-rate mortgages work

An ARM is quoted as two numbers, commonly written like 5/6 or 7/6. The first is how many years the initial rate is fixed. The second is how often it can adjust afterwards, in months.

After the introductory period the rate is recalculated as an index plus a margin. The index is a published market rate that moves on its own — most current ARMs use SOFR. The margin is a fixed number set by the lender in your note and does not change for the life of the loan.

Caps bound the movement. There is typically a cap on the first adjustment, a cap on each later adjustment, and a lifetime cap on how far the rate can rise above where it started. These are the numbers that decide your real exposure, and they are in the note.

The honest way to evaluate an ARM is to work out the payment at the lifetime cap and ask whether you could pay it. If the answer is no, the introductory rate is not a saving, it is a bet.

What to weigh up

The introductory rate is not a promise about what comes later. It is the one number marketing leads with and the one that stops applying first.
Plans change. "We will refinance before it adjusts" depends on rates, your credit, your income and the property's value at that future date — none of which is knowable now, and all of which have to cooperate.
An ARM and a fixed-rate loan can look close on monthly payment and be very far apart on risk. Comparing them on the introductory payment alone compares the wrong thing.
Some ARMs have an interest-only period, which is a separate feature and a separate risk. It is not implied by the loan being adjustable.
If the loan has a prepayment penalty, that interacts badly with a plan to refinance before adjustment. Ask explicitly.

Set by the lender, not by us

These vary between lenders and change over time. Nothing on this page is a quote, an approval, or a commitment to lend.

Which index the loan uses, and the margin added to it
The initial, periodic and lifetime caps
The length of the introductory period, and how often it adjusts afterwards
Credit score, debt-to-income and reserve requirements
Whether the loan is qualified at the introductory rate or at a higher stressed rate
Whether a prepayment penalty applies

Nothing on this page is a rate quote, an approval, or a commitment to lend. Figures and requirements change, and they depend on your file.

Adjustable-rate compared with fixed-rate

The comparison people make is the opening payment. The comparison that decides whether an ARM is right is who carries the risk of rates moving, and for how long.

Adjustable-rate compared with fixed-rate
Factor	Adjustable-rate	Fixed-rate
Who carries rate risk	You do, after the introductory period ends. The rate is recalculated on a schedule from an index you do not control.	The lender does. The rate is set at closing and does not change for the life of the loan.
The opening rate	Typically lower than a fixed rate written on the same day, which is the trade being offered.	Typically higher at the outset, and it is the rate you keep.
What sets the rate later	An index plus a fixed margin from your note, bounded by caps. The margin never changes; the index moves on its own.	Nothing. There is no later rate.
Worst case	Defined by the caps — an initial cap, a periodic cap and a lifetime cap, all in the note. Model the payment at the lifetime cap before signing.	The payment you agreed. Taxes, insurance and dues can still change, since those are not part of the rate.
Who it tends to suit	Someone whose timeline genuinely ends before the first adjustment, and who could still afford the loan if it does not.	Someone who intends to stay, or who would rather pay more now than carry uncertainty.
Planning to refinance out	Common, and dependent on rates, credit, income and value at that future date. Treat it as a hope, not a plan.	Optional. Refinancing is a choice rather than something the loan structure pushes you toward.
How to compare them honestly	Total cost over the period you actually expect to hold it, with the payment at the caps as the downside case.	Total cost over the same period, at a rate that is known for all of it.

Who carries rate risk

Adjustable-rate: You do, after the introductory period ends. The rate is recalculated on a schedule from an index you do not control.
Fixed-rate: The lender does. The rate is set at closing and does not change for the life of the loan.

The opening rate

Adjustable-rate: Typically lower than a fixed rate written on the same day, which is the trade being offered.
Fixed-rate: Typically higher at the outset, and it is the rate you keep.

What sets the rate later

Adjustable-rate: An index plus a fixed margin from your note, bounded by caps. The margin never changes; the index moves on its own.
Fixed-rate: Nothing. There is no later rate.

Worst case

Adjustable-rate: Defined by the caps — an initial cap, a periodic cap and a lifetime cap, all in the note. Model the payment at the lifetime cap before signing.
Fixed-rate: The payment you agreed. Taxes, insurance and dues can still change, since those are not part of the rate.

Who it tends to suit

Adjustable-rate: Someone whose timeline genuinely ends before the first adjustment, and who could still afford the loan if it does not.
Fixed-rate: Someone who intends to stay, or who would rather pay more now than carry uncertainty.

Planning to refinance out

Adjustable-rate: Common, and dependent on rates, credit, income and value at that future date. Treat it as a hope, not a plan.
Fixed-rate: Optional. Refinancing is a choice rather than something the loan structure pushes you toward.

How to compare them honestly

Adjustable-rate: Total cost over the period you actually expect to hold it, with the payment at the caps as the downside case.
Fixed-rate: Total cost over the same period, at a rate that is known for all of it.

There is no general answer, and anyone offering one is selling. An ARM is cheaper at the start and uncertain later; a fixed rate is dearer at the start and known throughout. The deciding question is what the payment would be at the lifetime cap and whether you could pay it — if the answer is no, the opening rate is not a saving.

Terms used on this page

Adjustable-rate mortgage (ARM): A mortgage whose interest rate can change at set intervals, based on a published index plus a fixed margin. It usually opens with a rate below the comparable fixed-rate loan.The initial rate is the headline; the caps are the substance. Ask what the rate can do at the first adjustment, at each one after, and over the life of the loan.
Adjustment period: The interval between interest rate changes on an adjustable-rate mortgage. The first period runs from closing and is usually longer; later periods are commonly annual.
Rate cap: The limit on how far the rate on an adjustable-rate mortgage can move — at the first adjustment, at each one after, and over the life of the loan.Three numbers, not one. Ask for all three and work out the worst-case payment before you decide.
Index: The published rate an adjustable-rate mortgage tracks. The lender adds a fixed margin to the index to set your rate at each adjustment.The index matters when the market moves. Most ARMs written today use SOFR or a Constant Maturity Treasury rate — LIBOR, which older material still names, was discontinued in 2023.
Margin: The fixed percentage a lender adds to the index to set the rate on an adjustable-rate mortgage at each adjustment.The index moves; the margin does not. Two ARMs on the same index can price quite differently because of it.
SOFR: The Secured Overnight Financing Rate, published by the Federal Reserve Bank of New York. It is the most common index for adjustable-rate mortgages written today.SOFR replaced LIBOR as the standard reference rate for new lending. Adjustable-rate loans typically use an averaged SOFR rather than the daily figure.

See the full mortgage glossary

Questions about this program

What do the two numbers in 5/6 ARM mean?: The first is how many years the initial rate stays fixed — five. The second is how often it can adjust after that, in months — every six. A 7/6 ARM is fixed for seven years then adjusts every six months.
How is the new rate worked out at each adjustment?: Index plus margin, then bounded by the caps. The index is a published market rate that moves independently; the margin is a fixed number written into your note that never changes. Your lender does not choose the index value at adjustment, but it does choose the index, the margin and the caps when the loan is written.
How high can the payment actually go?: As high as the caps allow, and that is the figure to model before you sign. Work out the payment at the lifetime cap and ask whether you could pay it. The caps are in the note and a lender should be willing to walk you through them.
Can I just refinance before it adjusts?: Often, but it is not something anyone can guarantee you. Refinancing depends on rates at that time, your credit and income then, and the property's value then. Treat it as a hope rather than a plan, and make sure the loan still works if the refinance does not happen.
Is an ARM cheaper than a fixed-rate loan?: It usually starts cheaper. Whether it ends up cheaper depends on how long you keep it and what rates do, neither of which is known in advance. The comparison table on this page sets out what actually differs between the two.
Does an ARM mean interest-only payments?: No. Those are separate features. Some ARMs have an interest-only period and most do not. If a loan has one, it should be stated plainly, because it changes how quickly you build equity.

Official sources

Program rules are set by these organizations and are updated periodically. Where this page and an official source disagree, the official source is correct.

Consumer Handbook on Adjustable-Rate Mortgages (CHARM booklet) (opens in a new tab) — Consumer Financial Protection Bureau
Explore loan options (opens in a new tab) — Consumer Financial Protection Bureau
Mortgage key terms (opens in a new tab) — Consumer Financial Protection Bureau

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