Is a 5 Year Adjustable Rate Mortgage a Good Option For You?

Man in his front yard pondering whether to take out an adjustable rate loan.

Smart or bad decision, getting a 5 year ARM? Well, that depends on a bunch of factors (i.e. current 30 year rates, tolerance for risk, years you plan to be in the home, etc).

5/1 ARM programs are probably the most popular of all adjustable rate mortgage products. 5/1 ARM rates tend to be consistently lower than seven and ten year ARMs and have a larger gap between the rates offered when compared against 30 year fixed rate mortgages. However, with a 5 year adjustable rate mortgage you do carry a higher lever of risk as your introductory rate only remains set for the first 60 months of the loan. After the first five years pass, the mortgage then begins to bounce around for the remaining term of the loan (most have 30 year amortization schedules). Adjustable rate mortgage programs are tied to specific indexes and will adjust as those financial indexes fluctuate. There are typically caps for each loan program which limit the maximum annual and lifetime adjustments. You may only want to consider a 5 year ARM if you plan on being in your property for less than 5-7 years and rates are considerably lower than current fixed mortgage interest rates. Be sure to speak with a licensed mortgage professional serving your area before making a decision to pursue a 5 year ARM for your refinance or home purchase.

Why Consider a 5 Year ARM?

  • Potential savings for the first 60 months of the loan before the mortgage begins to adjust.
  • May be a good fit for people who feel secure in their current employment and in stable or appreciating real estate environments.
  • Caps, Margins, and Indexes will vary by product and investor. Be sure to ask a mortgage professional for details.

Note: If you are a mortgage lender or broker that offers ARM programs and would like to advertise on, please call 910-547-6910.

For additional information on 5/1 ARM pricing, contact the mortgage companies listed in the rate table below. They’ll be able to offer you quotes on your specific home loan scenario and recommend additional programs that might be a better fit for your situation.