Compare ARM Rates
If you’re considering an adjustable-rate mortgage, or ARM, you probably have one big driver: you want to get the best interest rate you can. Because these loans let lenders change the interest rate based on market conditions, they lower risk for the lender. That gets passed forward to you in the form of a more favorable interest rate.
As a result, ARMs almost always have a lower rate than fixed-rate loans for the same amount. They do come with some risk, though.
That changing interest rate means you can’t predict what your monthly mortgage payment will be. As a result, adjustable-rate mortgages aren’t right for everyone. It’s important to crunch the numbers using the latest interest rates and an ARM calculator. This helps you make sure you can afford the maximum your monthly payment could hit.
What is an adjustable-rate mortgage?
An adjustable-rate mortgage is precisely what it sounds like: a home loan with an interest rate that can change over time. Fortunately for borrowers, the lender can’t just spike the interest rate on a whim. Instead, these loans work a specific way. The amount you’ll pay each month depends on:
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The index to which your loan is tied: ARMs get linked to an established index like the secured overnight financing rate (SOFR). If that goes up, your rate can at the next adjustment period. If it goes down, your rate can drop.
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Your margin: Your interest rate at each adjustment period equals the index plus the margin specified by your loan documents.
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Your introductory period: Most ARMs come with a fixed-rate introductory period. On a 5/1 ARM, for example, that’s five years. On a 10/1 ARM, it’s 10 years. A longer introductory period means more time with stable payments. But lenders reserve the lowest interest rates for ARMs with shorter introductory periods.
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Your adjustment cadence: The number after the slash tells you how often your rate can adjust. On a 5/1 ARM, the “1” indicates that the rate can adjust one time each year. On a 5/6 ARM, the “6” means adjustment can happen every six months.
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Adjustment cap: Your loan details set a limit on how much your rate can change at each adjustment period (e.g., by 2%).
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Lifetime cap: Similarly, your loan sets a ceiling on how much your rate can go up in total over the life of your loan (e.g., by 6%).
Knowing all of this information helps you figure out how much your ARM could cost you over time.
Pros and cons of an ARM
Because ARMs come with benefits and risks, it’s important to think through what they would mean for your specific financial situation.
Pros of an adjustable-rate mortgage
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Lenders generally offer a lower interest rate on ARMs than on fixed-rate loans for the same amount of money.
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If you plan to sell or refinance before the introductory period ends, an ARM can help you see savings.
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Lenders calculate your debt-to-income (DTI) ratio when deciding whether or not to give you the loan. The lower starting rate makes your monthly payments lower, which can help you qualify for a bigger loan.
Cons of an adjustable-rate mortgage
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The indexes attached to ARMs tend to go up. SOFR, for example, has climbed significantly in the last five years.
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If your rate increases, it can make your monthly payments unaffordable, putting you at risk for default.
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With indexes, margins, and caps, figuring out how much an ARM will cost you is more difficult than calculating payments with a fixed-rate loan.
How to compare ARM mortgage rates
If you only take one piece of advice when you’re getting a mortgage, let it be this: compare rates from at least three different lenders. Doing so can save you thousands of dollars over the life of your loan.
To make it easier for you to put the work in here, follow these steps:
Step 1: Understand your borrower profile
First, you want to get a handle on how mortgage lenders are going to see you. If you look like you’re going to be able to repay your home loan fairly easily, they’ll offer you more favorable conditions. If you look high-risk, you’re going to pay more for your mortgage. Specifically, you’ll be charged a higher interest rate.
So, what makes a borrower low- or high-risk? To decide what kind of loan to offer to you (if any), lenders look at a lot of factors. The biggest ones here include:
- Your monthly income — you don’t want an overly large chunk to have to go toward paying your monthly mortgage bill, which lenders measure with your debt-to-income (DTI) ratio
- Your credit score, which essentially tells them how good you’ve been with managing money in the past
- Your loan-to-value (LTV) ratio (higher is riskier) — the price of the house and your down payment size both come into play here
If you’re not in good shape in any of these areas, putting in some work before you buy (e.g., working on your credit score, lowering your DTI ratio) can help you get a lower interest rate.
Step 2: Use rate tables to see what’s on offer today
There are lots of resources online that show you rate offers from leading lenders. Use a mortgage rate table to get a feel for what kind of interest rates are available from financial institutions that provide home loans in your area.
Ideally, that rate table lets you input personal information, like your credit score and the price of the house you want to buy. This way, the rates you get shown should align with what you’re actually eligible to get. A lot of lenders advertise low starting rates, but only the “best” borrowers will be approved for them once they apply.
Step 3: Get preapproved with three lenders
Once you’ve picked out a few lenders that look good to you, go through their preapproval process. That will mean filling out some paperwork, but it’s the best way to figure out what you can really qualify for in terms of loan size and interest rate.
Have financial documents — like your bank statement and pay stubs — handy to make it easier to complete your preapproval applications.
Step 4: Compare preapprovals
When you get preapproved, the lender should give you documentation about your potential mortgage. Ideally, this gives you a feel for the total amount you’re borrowing, the repayment term, the interest rate, fees, and closing costs.
Line up your quotes from each lender and go through them, paying special attention to the annual percentage rate (APR). This tells you how much you’ll pay each year for the loan including not just interest, but also fees. By looking at APRs, you get a clear idea of what you’ll truly pay if you choose that specific mortgage. This helps you identify the best option for yourself and your financial goals.
If you’re ready to start comparing ARM rates, use our rate table to get started. We have fields up top where you can input key details like your credit score range and zip code so we can best tailor the mortgage rate offers to you.