A fixed-rate mortgage keeps the same rate for the life of the loan. An adjustable-rate mortgage (ARM) starts with a fixed rate for a set period, commonly 5, 7 or 10 years, then adjusts with a market index. An ARM can save money if its starting rate is meaningfully lower and you expect to sell or refinance before it adjusts; a fixed rate is the safer choice if you’ll stay long or want a predictable payment.
How ARMs work
A “7/6 ARM” has a fixed rate for 7 years, then adjusts every 6 months. After the fixed period, your rate becomes an index (usually SOFR) plus a margin set in your loan, limited by caps.
| Cap | Common example | What it limits |
|---|---|---|
| Initial adjustment | 2% or 5% | How much the rate can change at the first adjustment |
| Periodic | 1% | Each later adjustment |
| Lifetime | 5% | The most the rate can ever rise above the start rate |
A 6% start rate with a 5% lifetime cap could reach 11%. Your Loan Estimate shows the highest possible payment; read it before you choose.
Try it: ARM vs. fixedCompare costs over the years you expect to keep the loan, including what happens if rates rise after the fixed period.When an ARM can make sense
- You expect to move or refinance before the fixed period ends.
- The ARM rate is meaningfully lower than the fixed rate, often by half a point or more.
- You could handle the payment at the cap if your plans change.
- You expect your income to rise.
When fixed is better
- You plan to stay longer than the fixed period.
- Your budget couldn’t absorb a big payment increase.
- The rate difference is small.
The refinance assumption
Many ARM borrowers plan to refinance before the rate adjusts. That works if rates fall or stay flat and your finances and home value hold up. It doesn’t if rates rise or your income drops. Test your payment at higher rates with the rate sensitivity tool, and see when a refinance would pay off with the refinance break-even tool.
Qualifying for an ARM
Lenders often qualify you at a rate higher than the start rate for shorter fixed periods, so an ARM doesn’t always raise how much you can borrow. Ask lenders to compare both with compare mortgage offers.
Other ways to lower your early payments
A 2-1 buydown lowers your rate for the first two years on a fixed-rate loan, often paid by the seller, and permanent points lower it for the life of the loan.
Common questions
What does 7/6 ARM mean?
The rate is fixed for 7 years, then adjusts every 6 months based on an index plus a margin, within set caps.
How high can an ARM rate go?
Up to the lifetime cap, often 5 percentage points above the starting rate. Your Loan Estimate shows the highest possible payment.
Is an ARM a good idea right now?
It can be if its rate is meaningfully lower and you expect to sell or refinance before it adjusts, and you could afford the payment if it rises.
Updated October 2026. Educational content. OfferBacked is not currently a lender and doesn’t issue pre-approvals or loans.