A 5/6 ARM is a type of adjustable-rate mortgage that offers a fixed interest rate for the first five years, then adjusts every six months after that. It’s a popular choice for homebuyers who want a lower initial rate and plan to move or refinance before the adjustable period begins. Here, we explain how a 5/6 ARM works, its pros and cons, and who should consider one.

Understanding how a 5/6 ARM works

A 5/6 ARM, short for 5-year adjustable-rate mortgage with 6-month adjustments, is a hybrid mortgage loan. The “5” refers to the number of years the interest rate stays fixed at the start of the loan. After that period, the “6” indicates that the interest rate will adjust every six months.

Here’s how it breaks down:

• Fixed-rate period: For the first five years, your interest rate and monthly payments remain the same.
• Adjustment period: Starting in year six, your rate adjusts every six months based on the loan’s index and margin.

The adjustments are usually tied to a benchmark index like the Secured Overnight Financing Rate (SOFR), plus a margin set by your lender. For example, if the SOFR is 4.3% and your margin is 2.5%, your new rate could be 6.8%.

Most 5/6 ARMs also include caps that limit how much your rate can increase or decrease:

• Initial cap: Limits the first adjustment (e.g., 2%)
• Periodic cap: Limits changes every six months (e.g., 1%)
• Lifetime cap: Limits total change over the loan’s life (e.g., 5%)

Why choose a 5/6 ARM?

The main advantage of a 5/6 ARM is that the initial interest rate is typically lower than what you’d get with a traditional 30-year fixed mortgage. This makes it an attractive option if you:

• Plan to sell your home or refinance within five years
• Want to lower your initial monthly payments
• Expect your income to increase in the future
• Prefer to invest the savings from lower payments elsewhere

For example, if a 30-year fixed loan has a rate of 6.75%, a 5/6 ARM might offer an initial rate of 5.75%. That 1% difference can save you thousands of dollars in the early years of your loan.

The risks of a 5/6 ARM

Of course, there’s a trade-off for that initial savings: uncertainty in the future.

Once the fixed-rate period ends, your interest rate could rise — possibly significantly — depending on market conditions. That means your monthly payments could also rise, which can strain your budget if you're not prepared.

Here are some common risks to consider:

• Payment shock: If rates rise, your mortgage payment could increase quickly.
• Market volatility: Economic factors could cause unexpected rate increases.
• Refinancing challenges: If your credit or home value changes, you may not qualify to refinance before your rate adjusts.

That’s why it’s crucial to understand your rate caps and build flexibility into your budget.

How a 5/6 ARM compares to other mortgage options

Buyers who want to pay off their loan faster

Compared to other ARMs, the 5/6 ARM has more frequent adjustments after the fixed period (every six months instead of annually). This gives you a closer tie to current market rates but also increases the risk of rate volatility.

Who should consider a 5/6 ARM?

A 5/6 ARM can be a smart strategy for:

• First-time buyers who want lower payments while building equity.
• Professionals on a career growth path who expect higher income in five years.
• Military families or relocators who don’t expect to stay long in one place.
• Real estate investors planning to sell or refinance after renovations.

However, if you’re risk-averse or planning to stay in the same home for more than five years, a fixed-rate loan may offer better peace of mind.

How to evaluate a 5/6 ARM

Before choosing a 5/6 ARM, ask your lender:

• What is the starting interest rate and how does it compare to fixed loans?
• What is the index and margin used for rate adjustments?
• What are the caps on the initial adjustment, periodic changes, and lifetime rate?
• Can I afford the maximum possible monthly payment if rates rise?
• What are the refinancing options before the adjustable period begins?

You should also use an adjustable-rate mortgage calculator to estimate your payments after the fixed period, not just during the initial five years.

Pros and cons of a 5/6 ARM

Pros:

• Lower initial interest rate
• Lower initial monthly payments
• Good for short-term ownership or future refinance
• May allow you to qualify for a more expensive home

Cons:

• Payments can increase after five years
• Rate adjusts twice a year
• Not ideal for long-term stability
• Potential for refinancing risk if the market changes

Is a 5/6 ARM right for you?

A 5/6 ARM can be an effective mortgage strategy if you understand the structure and have a clear financial plan. It rewards you with a lower initial rate and potential savings, especially if you're not planning to stay in your home long term.

However, it’s essential to weigh the risks. If your income is stable, and you’re comfortable with the possibility of rate changes, it could be a smart way to manage your mortgage costs. But if you value predictability above all else, a fixed-rate mortgage may still be your best bet.

Ready to explore your mortgage options? Compare ARM rates today at Rates.Now and see how much you could save.

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