Adjustable Rate Mortgage
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Adjustable-Rate Mortgage (ARM): Requirements And Eligibility For 2022

Get a more affordable interest rate and lower monthly payments at the start of your mortgage.

General ARM Overview

What’s An Adjustable-Rate Mortgage (ARM)?

Also known as a variable-rate mortgage, an adjustable-rate mortgage is a home loan with an interest rate that fluctuates over time. ARMs feature an initial, fixed interest rate for a specific time period – usually 5, 7 or 10 years. After that, your interest rate may change every 6 months, depending on the market. That means your monthly mortgage payment could go up or down twice a year. Your rate won’t increase more than 5% of the original rate throughout the life of the loan, though.

Adjustable-rate mortgages are shown as two numbers with a slash in between. The first number shows how many years the interest rate is fixed. The number after the slash shows how many months the adjustment period is. For example, a 5/6 ARM offers a fixed rate for 5 years, then the rate adjusts every 6 months.

What’s The Difference Between ARMs And Conventional Mortgages?

Conventional mortgages, or fixed-rate mortgages, keep the same interest rate over the life of the loan.

Adjustable-rate mortgages, on the other hand, start with a low fixed interest rate for 5, 7 or 10 years, and then adjust the rate periodically after that. The initial fixed interest rate on our ARMs is usually lower than the corresponding 30-year fixed interest rate.

To learn more, read What’s the Difference Between Adjustable-Rate and Fixed-Rate Mortgages?

What Types Of Adjustable-Rate Mortgages Are Available?

7/6 Adjustable-Rate Mortgage

The interest rate is fixed on the 7/6 ARM for the first 7 years. Then the interest rate can adjust every 6 months for the remaining 23 years.

10/6 Adjustable-Rate Mortgage

A 10/6 ARM offers a fixed interest rate for 10 years. Then the interest rate adjusts every 6 months for the remaining 20 years. 

5/6 Adjustable-Rate Mortgage

We’re not offering these right now, but we may again in the future.

A 5/6 ARM has a fixed interest rate for the first 5 years. Then the interest rate can adjust every 6 months for the remaining 25 years.

Other Types Of ARMs

  • FHA offers an ARM option.
  • Qualified veterans, service members and spouses may be eligible for an ARM with a VA loan.
  • FHA and VA ARMs have different requirements from our 5/6, 7/6 and 10/6 ARMs.

How Are ARM Mortgage Rates Determined?

ARM interest rates are based on a combination of factors, including today’s mortgage rates, the Secured Overnight Financing Rate (SOFR) index and caps.

SOFR Index

The Secured Overnight Financing Rate (SOFR) measures the cost of borrowing cash overnight and is calculated by the New York Federal Reserve. We use the SOFR index’s 30-day average to help determine interest rates for our adjustable-rate mortgages. 


Each adjustable-rate mortgage has a cap that limits how much the interest rate can change up or down at each adjustment date and over the life of the loan.

There are three caps:

  • Initial cap sets the ceiling and the floor for the rate of the first adjustment.
  • Periodic cap sets the ceiling and the floor for the rate at each subsequent adjustment.
  • Lifetime cap sets the ceiling and the floor for the rate over the life of the loan.

These caps are shown as a series of three numbers with slashes in between. For example, 5/6 ARM caps are 2/1/5. The first number means that after 5 years of fixed-rate interest, the first adjustment is capped at 2%. Every adjustment after the initial cap can only go up or down 1%. The final number means the total interest over the life of the loan cannot go up or down more than 5%.

Our Adjustable-Rate Mortgage Caps

  • 7/6 ARM caps are 5/1/5
  • 10/6 ARM caps are 5/1/5

Calculating The New Payment

When a rate adjusts, here’s what we use to calculate the new payment: 


  • The current unpaid principal balance of the loan
  • The new interest rate
  • The remaining term of the loan


Since each re-calculation uses the remaining term of the original 30-year loan, you’ll always remain on track to pay off your loan 30 years after the date you close, as long as you stay current with your payments. 

What Are The Qualifications For An ARM?

To qualify for an ARM purchase or rate/term refinance on a primary residence, you’ll need:

  • A minimum 5% down payment
  • A minimum FICO® Score of 620
  • A debt-to-income ratio (DTI) of no more than 50%. Estimate your DTI by adding your monthly debt payments (such as credit card and car payments) and dividing the total by your monthly income before taxes.
  • A maximum loan-to-value ratio (LTV) of 95%

Take the first step toward the right Downtone Loans


A key benefit of an ARM is that the initial rate is typically lower than a fixed-rate mortgage, which makes monthly payments more affordable.

Caps limit how much interest rates, and your payment, can rise over the life of the ARM loan.

An ARM can be a wise choice if you’re planning to pay off the loan in full, or sell your home, before the adjustment period kicks in.

For many people, the initial fixed-rate period matches how long they’ll be in their home before they move or refinance.

There’s a possibility your payment could go down if interest rates fall.


Apply online and work at whatever pace is convenient for you.

Home Loan Experts are available via chat, email and phone to help you understand whether an ARM is right for you.

We service 99% of our mortgages, so our great customer service continues after you close.

After you close your loan, you can manage your mortgage online without any hidden fees.

No prepayment penalties if you pay off your loan early.


Downtone Loans has been providing our clients with award-winning service for over 60+ Years. We service 99% of our loans, which means you’ll get the same care and attention throughout the entire life of your loan.