Definition
A 5/1 adjustable-rate mortgage (ARM) has a fixed interest rate for the first 5 years. After that, the rate can change once a year for the rest of the loan term.
Understanding the 5/1 ARM
A 5/1 adjustable-rate mortgage usually surfaces during the loan shopping phase. It offers a fixed rate for the first five years, followed by annual adjustments. This means your initial payments are predictable for a set period. Example: If you start with a 3% interest rate, it stays that way for five years. After that, it might change each year based on market rates. It's not a fixed-rate loan, so payments can vary after the initial period. Many borrowers find this option appealing if they plan to move or refinance within the fixed rate duration.
