ARM adjustment frequency? A 5/1 ARM adjusts annually after the first 5 years, a 7/1 ARM after 7 years, and a 10/1 ARM after 10 years. Understanding the adjustment schedule helps you plan for potential payment changes.
Adjustment Frequency by ARM Type
Hybrid ARMs combine an initial fixed-rate period with periodic adjustments. A 5/1 ARM offers a fixed rate for the first 5 years, then adjusts once per year. A 7/1 ARM adjusts after 7 years, and a 10/1 ARM after 10 years. The number before the slash is the fixed period in years. The number after the slash is how often the rate adjusts after that in years.
Some ARMs adjust more frequently than once a year, such as 6-month or 3-month ARMs, but these are less common for homebuyers. Most residential mortgage ARMs follow the annual adjustment pattern.
How Adjustments Affect Your Payment
At each adjustment date, the lender recalculates your rate using the current index value plus your fixed margin. Your payment goes up if the index has risen and down if it has fallen. Rate caps limit how much the rate can change at each adjustment and over the life of the loan.
If you plan to sell or refinance before the fixed period ends, a 5/1 or 7/1 ARM can save you money compared to a 30-year fixed rate loan. Patrick Kevin Fagan recommends matching the fixed period to your expected time in the home.
