A 5/1 ARM, or adjustable-rate mortgage, gives you a fixed rate for the first five years that then adjusts annually. Generally, ARMs are considered riskier than fixed-rate home loans. They do start with lower interest rates, though. As a result, there are some situations in which the timeline of a 5/1 ARM might fit perfectly with your goals. 

Understanding adjustable-rate mortgages

When most people talk about getting mortgages, they refer to one specific type: 30-year fixed-rate conventional loans. While that’s the most common form of mortgage, it’s absolutely not your only option. You can get a loan backed by a government entity, like an FHA loan or VA loan. You can get a shorter-term mortgage, like a 15-year loan. And you can get one with an adjustable interest rate. This is called an ARM, which stands for adjustable-rate mortgage. 

With an ARM, the lender has the power to adjust your interest rate at periodic intervals. Because that helps to offset some risk for them, adjustable-rate loans almost always start with lower interest rates than fixed-rate loans. 

Plus, the lender can’t just hike up your rate when they want. Instead, your 5/1 ARM — and any adjustable-rate mortgage — comes with specific features that shape your rate adjustment. 

How the lender adjusts your interest rate

If you decide to get a 5/1 ARM, your loan details will include information about an index and a margin. The index plus the margin determines where the lender can set your rate at each adjustment period.

Your loan’s index is usually directly tied to a preexisting index like the:

• Constant Maturity Treasury (CMT)
• Secured Overnight Financing Rate (SOFR)
• 11th District Cost of Funds Index (COFI)

If that index goes up, your mortgage’s interest rate can, too. If it goes down, you should see the interest rate on your 5/1 ARM drop. 

That’s not to say your interest rate will always equal the index to which your loan is tied. Lenders add a margin into the mix. That margin is usually in the 1–3% range. 

Say, for example, that you have a 5/1 ARM that’s tied to the SOFR index and has a margin of 2.75%. If your interest rate adjusts in July 2025, while the SOFR is at 5.3%, your interest rate would adjust to 8.05% (5.3 + 2.75).

Clearly, then, your margin plays a pretty big role in how much you pay for your loan. Shopping around and comparing different lenders’ margins can help you get the best deal on your adjustable-rate mortgage. 

There’s one last thing you should know about how lenders can adjust the interest rate on your 5/1 ARM. There is a maximum here. Specifically, ARMs come with two kinds of rate caps:

• For each individual adjustment period — that means your lender can only increase your rate by so much (usually, 1–2% max) at each adjustment. 
• For the life of the loan — that means that over the years you have your 5/1 ARM, the interest rate can only increase by a certain total amount (usually, 5–6%). 

If rates swing upward quickly or dramatically, these rate caps protect you from a serious financial strain. 

What the numbers mean: How a 5/1 ARM works

Almost everything we’ve laid out so far applies to all adjustable-rate loans. What sets a 5/1 apart is those two numbers you see at the beginning of its name. That takes the loan from being purely an ARM to a hybrid loan. In other words, with the 5/1 in play, your mortgage becomes a combination of a fixed-rate loan and an adjustable-rate one. 

Let’s break it down:

• The number before the slash: This tells you how long, in years, your introductory period will last. This is the fixed-rate period on your loan. With a 5/1 ARM, that introductory, fixed-rate period lasts five years. During that time, you pay the same interest rate. 
• The number after the slash: This tells you how frequently your lender can adjust your rate. In the case of a 5/1 ARM, that “1” stands for one year. That means that after your five-year fixed-rate period is up, your lender can start moving your rate on an annual basis. 

One thing you should know: the number after the slash doesn’t always denote years. You might see a 5/6 ARM, for example. That doesn’t mean the rate only adjusts every six years. Instead, in that case, the “6” stands for six months, meaning the lender can adjust the rate twice a year. 

A 5/1 ARM isn’t the only kind of adjustable-rate mortgage you can get. You can also choose 7/1 ARMs, with seven-year fixed-rate periods and annual adjustments. In addition to the 5/6 and 7/1 ARMs we’ve mentioned, other common ARM options include:

• 3/1 ARMs
• 3/6 ARMs
• 7/6 ARMs
• 10/1 ARMs
• 10/6 ARMs

Usually, if you choose a longer introductory period, the loan will come with a higher starting interest rate. 

Deciding if a 5/1 ARM is right for you

A 5/1 ARM comes with some risk. If interest rates move up, something they’ve been doing lately, your monthly mortgage payment gets more expensive. That said, there are some instances in which a 5/1 ARM could be right for you. Generally, experts recommend it if:

• You plan to move before the introductory period ends
• You know your income will increase in the future and you’re ready to buy now
• You expect interest rates to come down 

Before you choose this type of loan, it’s important to weigh the pros and cons. Also, explore 5/1 ARM rates and compare them against fixed-rate loans and other ARMs. Our live rate tables help you get a feel for the options that are available to you. 

And if you get an ARM and rates end up rising more than you can handle, you can always explore refinancing into a fixed-rate mortgage. We’ll keep the latest refinance rates handy for you. 

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