ARM

Real Estate

An Adjustable-Rate Mortgage (ARM) starts with a fixed introductory rate for a specific period (5, 7, or 10 years), then adjusts annually based on an index (SOFR replaced LIBOR) plus a margin. Initial ARM rates are typically 0.5-1% below equivalent fixed-rate mortgages — meaningful savings during the intro period. After intro, rates can rise rapidly subject to caps (annual cap, lifetime cap). ARMs make sense for buyers planning to sell or refinance within the intro period, expecting significantly higher future income, or in declining-rate environments. The 2008 financial crisis was partly fueled by borrowers misunderstanding ARM resets. Run amortization scenarios across rate paths before choosing.