A 5/6 hybrid adjustable-rate mortgage (5/6 hybrid ARM) is a mortgage with an interest rate that is fixed for the first five years, then adjusts every six months after that. The adjustable interest rate on 5/6 hybrid ARMs is usually tied to a common benchmark index.
Common CAPS are 5/2/5 or 2/2/6 for the 5/1 ARM. The first digit with the CAPS (2/2/6), is how much the interest rate can adjust at the first adjustment point. So, if you have a 5/1 ARM, with 2/2/6 CAPs, your rate may adjust up or down no more than 2% at the first adjustment date.
ARM benefits
The advantage of a 5/1 ARM is that during the first years of the loan when the rate is fixed, you would get a much lower interest rate and payment. If you plan to sell in less than six or seven years, a 5/1 ARM could be a smart choice.
In most cases, the first number indicates the length of time that the fixed rate is applied to the loan, while the second refers to the duration or adjustment frequency of the variable rate. 2. For example, a 2/28 ARM features a fixed rate for two years followed by a floating rate for the remaining 28 years.
A 7/6 ARM is an adjustable-rate loan that carries a fixed interest rate for the first 7 years of the loan term, along with fixed principal and interest payments. After that initial period of the loan, the interest rate will change depending on several factors.
A 15/15 ARM is a specific type of adjustable-rate mortgage where the interest rate is fixed for 15 years, it adjusts once and then it remains at that new interest rate for the remaining life of the loan.
A 10/1 ARM has a fixed rate for the first 10 years of the loan. The rate then becomes variable and adjusts every year for the remaining life of the term. A 30-year 10/1 ARM has a fixed rate for the first 10 years and an adjustable rate for the remaining 20 years. A 15-year 10/1 ARM is similar.
A 5/6 hybrid adjustable-rate mortgage (5/6 hybrid ARM) is a mortgage with an interest rate that is fixed for the first five years, then adjusts every six months after that. The adjustable interest rate on 5/6 hybrid ARMs is usually tied to a common benchmark index.
A hybrid ARM's rate-adjustment periods are described in terms of the frequency of rate changes and the maximum amount the rate can fluctuate, known as caps. A 5/2/5 ARM can change by up to 5 percent upon the first adjustment, 2 percent thereafter, and by no more than 5 percent over the loan's lifetime.
A 7/1 ARM is a good option if you intend to live in your new house for less than seven years or plan to refinance your home within the same timeframe. An ARM tends to have lower initial rates than a fixed-rate loan, so you can take advantage of the lower payment for the introductory period.
A 5/1 ARM refinance loan works the same as an ARM you take out to purchase a house. At the end of the initial five-year fixed-rate term, your loan's interest rate will reset. After that, your interest rate — and monthly payments — can change once a year based on an index the lender uses.
Cons of an adjustable-rate mortgage
Rates and payments can rise significantly over the life of the loan, which can be a shock to your budget. Some annual caps don't apply to the initial loan adjustment, making it difficult to swallow that first reset. ARMs are more complex than their fixed-rate counterparts.
ARMs are easier to qualify for than fixed-rate loans, but you can get 30-year loan terms for both. An ARM might be better for you if you plan on staying in your home for a short period of time, interest rates are high or you want to use the savings in interest rate to pay down the principal on your loan.
The cap typically limits the total amount you can owe to 110% to 125% of the original loan amount. When you reach that point, the lender will set the monthly payment amounts to fully repay the loan over the remaining term. Your payment cap will not apply, and your payments could be substantially higher.
7-year ARM loans offer built-in savings, protections
A 7-year ARM is one with an initial fixed period of seven years. The rate can't change during that period. For many homeowners, that time frame will exceed the length of time they keep the house or mortgage.
What Is A 5/1 ARM Loan? A 5/1 ARM is a type of adjustable rate mortgage loan (ARM) with a fixed interest rate for the first 5 years. Afterward, the 5/1 ARM switches to an adjustable interest rate for the remainder of its term. The words “variable” and “adjustable” are often used interchangeably.
Note that a 3/3 ARM adjusts every three years and a 5/5 ARM adjusts every five years. Some loans defy this formula, as in the case of the 5/25 balloon loan. With a 5/25 mortgage, your interest rate is fixed for the first five years.
10/6 ARM: A 10/6 ARM loan has a fixed rate of interest for the first 10 years of the loan. After that, the interest rate will adjust once every 6 months over the remaining 20 years.
A 7/1 ARM is a mortgage that has a fixed interest rate in the beginning, then switches to an adjustable or variable one. The 7 in 7/1 indicates the initial fixed period of seven years. After that, the interest rate adjusts once yearly based on the index stated in the loan agreement, plus a margin set by the lender.
For example, if you plan to live in your house for eight to 10 years, taking out a 10/1 ARM (where the introductory rate lasts 10 years) is more cost-effective. A 10/1 ARM is usually between 0.25% to 0.5% less expensive than a 30-year fixed-rate mortgage.
When should a home buyer get an ARM? During periods of rising interest rates — like we've seen this year — ARMs offer a great option for borrowers to save money. As the Federal Reserve plans hikes for each of its remaining 2022 meetings, the mortgage rate surge could continue building momentum.
Prepayment penalties.
Some ARMs, especially interest only and payment options, charge fees if you try to pay off the loan early. That means if you decided to sell your home or refinance it, you will pay a penalty on top of paying off the balance on your loan.
A 5/5 ARM is an adjustable-rate mortgage that has a fixed mortgage rate for the first five years of a 30-year loan term. After that, the mortgage rate becomes variable and adjusts every five years.
Definition of a 5-year ARM
A 5-year ARM (adjustable rate mortgage) is a mortgage loan that has a fixed interest rate for the first 5 years of the loan. After that initial period, the interest rate of the loan can change (adjust) once each year for the remaining life (term) of the loan. This term is typically 30 years.