What Is an Adjustable-Rate Mortgage (ARM)?

Short answer

An adjustable-rate mortgage (ARM) is a home loan with a fixed rate for an initial period, after which the rate resets to an index plus a margin, limited by caps. A 5/6 ARM, for example, is fixed for 5 years and then adjusts every 6 months. As of October 2026, Fannie Mae and Freddie Mac ARMs use the 30-day average SOFR as the index.

Definition

A mortgage whose rate can change after an initial fixed period. The new rate equals index + margin, and caps limit how far it can move.

Worked example

Example only, not a quote: a $400,000, 30-year ARM starts at 6% with a 2% initial cap, 1% later caps and a 5% lifetime cap. Principal and interest is about $2,398 for 5 years. After 60 payments the balance is about $372,217. If the rate jumps the full 2% to 8%, the payment becomes about $2,873. The rate can never pass 11%, where the payment would be about $3,648.

How the rate is set

After the fixed period, your rate = index + margin, subject to caps (CFPB). The margin is set at closing and does not change.

As of October 2026, Freddie Mac requires the 30-day average SOFR for new SOFR ARMs and offers 3/6, 5/6, 7/6 and 10/6 products, with margins between 1% and 3%. Fannie Mae caps the margin at 300 basis points (3%).

• First number: years the starting rate is fixed
• Second number: how often it adjusts after that (6 = every 6 months)

The three caps

The CFPB describes three caps (as of October 2026):

• Initial cap: limits the first change, commonly 2% or 5%
• Subsequent cap: limits each later change, most commonly 1% or 2%
• Lifetime cap: limits the total change, most commonly 5% above the start rate

Two lenders can offer the same start rate with different caps, so compare all three and ask for the highest possible payment, which also appears on your Loan Estimate.

When an ARM may fit

An ARM may make sense if you plan to sell or refinance before the first adjustment, or if you need a lower starting payment on a jumbo loan. It is riskier if you plan to keep the home for decades on a tight budget. Rates vary daily; call for today's pricing.

In South Florida

Many Miami buyers expect to sell, move up or refinance within a few years, so a 5-, 7- or 10-year fixed period can match the plan. Budget for the adjusted payment anyway, because Miami-Dade insurance and HOA costs can rise at the same time.