Andrea Riquier is a New York-based writer covering mortgages and the housing market for Forbes Advisor. She was previously at Dow Jones MarketWatch, on the housing market and financial markets beats. Before that, she covered macro and central banks f.
Andrea Riquier Forbes Advisor StaffAndrea Riquier is a New York-based writer covering mortgages and the housing market for Forbes Advisor. She was previously at Dow Jones MarketWatch, on the housing market and financial markets beats. Before that, she covered macro and central banks f.
Written By Andrea Riquier Forbes Advisor StaffAndrea Riquier is a New York-based writer covering mortgages and the housing market for Forbes Advisor. She was previously at Dow Jones MarketWatch, on the housing market and financial markets beats. Before that, she covered macro and central banks f.
Andrea Riquier Forbes Advisor StaffAndrea Riquier is a New York-based writer covering mortgages and the housing market for Forbes Advisor. She was previously at Dow Jones MarketWatch, on the housing market and financial markets beats. Before that, she covered macro and central banks f.
Forbes Advisor Staff Chris Jennings Loans & Mortgages EditorChris Jennings is a writer and editor with more than seven years of experience in the personal finance and mortgage space. He enjoys simplifying complex mortgage topics for first-time homebuyers and homeowners alike. His work has been featured in a n.
Chris Jennings Loans & Mortgages EditorChris Jennings is a writer and editor with more than seven years of experience in the personal finance and mortgage space. He enjoys simplifying complex mortgage topics for first-time homebuyers and homeowners alike. His work has been featured in a n.
Chris Jennings Loans & Mortgages EditorChris Jennings is a writer and editor with more than seven years of experience in the personal finance and mortgage space. He enjoys simplifying complex mortgage topics for first-time homebuyers and homeowners alike. His work has been featured in a n.
Chris Jennings Loans & Mortgages EditorChris Jennings is a writer and editor with more than seven years of experience in the personal finance and mortgage space. He enjoys simplifying complex mortgage topics for first-time homebuyers and homeowners alike. His work has been featured in a n.
| Loans & Mortgages Editor
Updated: Sep 9, 2024, 8:35am
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Compare current adjustable-rate mortgage (ARM) rates to find the best rate for you. Lock in your rate today and see how much you can save.
Today’s current ARM rates are as follows:
ARMs are home loans whose rates can vary over the life of the loan. Unlike a fixed-rate mortgage, which carries the same interest rate over the entirety of the loan term, ARMs start with a rate that’s fixed for a short period, say five years, and then adjust.
For example, a 5/1 ARM will have the same rate for the first five years, then can adjust each year after that—meaning the rate might go up or down, based on the market.
ARMs are always tied to some well-known benchmark—an interest rate that’s published widely and easy to follow—and reset according to a schedule your lender will tell you in advance. But since there’s no way of knowing what the economy or financial markets will be doing in several years, they can be a much riskier way to finance a home than a fixed-rate mortgage.
An ARM isn’t for everyone. You need to take the time to consider the pros and cons before choosing this option.
Check your rates today with Better Mortgage.
There are three types of adjustable-rate mortgages:
While ARM loan requirements vary by lender, here’s what you generally need to qualify for one.
Aim for a credit score of at least 620. Many of the best mortgage lenders won’t offer ARMs to borrowers with a score lower than 620.
ARM lenders generally require a debt-to-income (DTI) ratio of less than 50%. That means your total monthly debt should be less than 50% of your monthly income.
You’ll typically need a down payment of at least 3% to 5% for a conventional ARM loan. Don’t forget that a down payment of less than 20% will require you to pay private mortgage insurance (PMI).
FHA ARM loans only require a 3.5% down payment, but paying that amount means you’ll have to pay mortgage insurance premiums for the life of the loan.
Fixed-rate mortgages are often considered a wiser option for most borrowers. Being able to lock in a low interest rate for 30 years—but still have the option to refinance as you want, if conditions change—often makes the most financial sense. Not to mention it’s predictable, so you know exactly what your rate is going to be over the course of the loan term.
But not everyone expects to stay in their home for years and years. You may be buying a starter home with the intention of building some equity before moving up to a “forever home.” In that case, if an ARM has a lower interest rate, you may be able to direct more of your money into that nest egg.
Alternatively, an ARM with a lower rate than a fixed-rate mortgage may simply be more affordable for you. As long as you’re comfortable with the idea of selling your home or otherwise moving on before the ARM’s initial rates reset—or taking the chance that you’ll be able to afford the new, higher payments—that may also be a reasonable choice.
If you’re not sure whether an ARM or a fixed-rate mortgage makes more sense for you, you should research lenders who offer both. A mortgage professional like a broker may also be able to help you weigh your options and secure a better rate.
You can potentially save $600 to $1,200 annually by applying with multiple mortgage lenders, according to research by Freddie Mac.
It’s possible to refinance an existing adjustable-rate mortgage into a new ARM or fixed-rate mortgage. You may consider an adjustable-rate refinance when you can get a better interest rate and benefit from a shorter repayment period.
Turning an existing adjustable-rate mortgage into a fixed interest rate mortgage is the better option when you want the same interest rate and monthly payment for the life of your loan. It may also be in your best interest to refinance into a fixed-rate mortgage before your ARM’s fixed-rate introductory period ends.
Find the best Mortgage Refinance Lenders for your needs.
Adjustable-rate mortgages can have lower interest rates during the introductory period than fixed-rate loans. It’s also possible for rates to fall in the future, which may result in you paying less interest over the life of the loan than if you had taken out a fixed-rate mortgage from the start.
You should also consider an ARM if you’re comfortable with a short repayment period, such as when you’re planning on paying off your mortgage early.
However, this may not be the best loan type for borrowers that need as long as 30 years to pay back their mortgage as interest rates can fluctuate widely over the life of the loan. Consider a fixed-rate refinance to lock in the same rate and monthly payment for the entire repayment period. This has the added bonus of allowing you to easily estimate your total interest costs.
Forbes Advisor Mortgages Writer Josh Patoka contributed to this article.
In a high-interest-rate environment, ARMs can help you land a lower mortgage rate and afford more home, but they’re not the best option for every borrower. With mortgage rates trending downward and the Federal Reserve expected to cut interest rates in 2024, ARMs are not as enticing as they were, say, at the end of 2023. If you plan to move or refinance before your ARM’s fixed-rate introductory period ends, then an ARM today may be a good idea. If not, consider exploring fixed-rate options and waiting for rates to drop even further.
There are times when an adjustable-rate mortgage might be a great choice for you. For instance, you may want to consider an ARM if you don’t plan to stay in your home for a long period of time. Many ARMs have an initial fixed-rate period of five, seven or 10 years, which may be about as long as you expect to own the home. Another good reason to consider an ARM is if you can’t afford the monthly payment of a fixed-rate mortgage. However, you’ll want to be sure you have an exit strategy before the ARM resets to a higher rate. An ARM may also benefit you if you have owned the home for some time and temporarily need a lower monthly payment before you sell.
Except in exceptional circumstances, borrowers usually pay a little more for the peace of mind that a long-term, fixed-rate mortgage brings. ARMs are riskier, since they reset to a different (likely higher) rate once their initial phase is done.
The primary factor that affects an adjustable-rate mortgage is the Federal Reserve. The interest rate on an ARM is linked to the Secured Overnight Financing Rate (SOFR), and the Fed’s decision to lower or increase its target federal funds rate can influence the SOFR to go up or down. This, in turn, would lead to a rise or fall in ARM rates as well. Timing is another factor, as whether the ARM’s interest rate goes up or down will depend on when the loan is scheduled to reset (and if interest rates are rising or falling at the time).
A 10-year ARM could be a good idea if you have a high income, plan to stay in your house longer and can afford to make larger monthly payments. This may allow you to pay off the loan sooner. This type of ARM can also be a good idea if you are approaching retirement. Paying off a mortgage loan with a shorter term while still earning income helps soon-to-be retirees to save money on interest payments.
Some mortgage loans come with prepayment penalties during the first few years of the loan, and these may lead to substantial costs on homeowners with ARMs who want to pay off the loan early before their rates increase. Many states have laws that cap the amount or duration of these penalties, though. If your ARM has a prepayment penalty, it has to be disclosed in your loan documents.
The fully indexed rate on an ARM is the margin—a number set by your lender when you applied for the loan—plus the index (benchmark interest rate). The result is your interest rate on the ARM when the initial rate expires. Your lender will decide which index your loan will use when you apply, and it won’t change after closing. The margin is the number of percentage points the lender adds to the index to set your interest rate after the initial rate period ends. It is set in your loan agreement and does not change after closing.
Helping You Make Smart Mortgage & Real Estate DecisionsGet Forbes Advisor’s ratings of the best mortgage lenders, advice on where to find the lowest mortgage or refinance rates, and other tips for buying and selling real estate.
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Forbes Advisor StaffAndrea Riquier is a New York-based writer covering mortgages and the housing market for Forbes Advisor. She was previously at Dow Jones MarketWatch, on the housing market and financial markets beats. Before that, she covered macro and central banks for Investor's Business Daily, and municipal bonds for Debtwire.
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