5/6 ARM
Your rate is fixed for the first 5 years, then can adjust every 6 months for the rest of the term.
Adjustable-Rate Mortgages (ARM) in Arizona
An adjustable-rate mortgage starts with a lower fixed rate for a set number of years, then adjusts with the market. For the right buyer in Queen Creek or Gilbert, that early savings can be a smart move. Howard Funding shops 40+ lenders and lays out an ARM next to a fixed loan in plain English, so you choose with your eyes open.
The Basics
How an adjustable-rate mortgage works
An adjustable-rate mortgage, or ARM, is a home loan whose interest rate can change over time. It has two distinct phases. First comes an introductory fixed period, where your rate is locked and your principal-and-interest payment stays the same, often at a lower rate than a comparable fixed loan. After that period ends, the loan enters its adjustable phase, where the rate can move up or down at set intervals for the rest of the term.
You'll see ARMs written as two numbers, like 5/6 or 7/6. The first number is how many years the rate stays fixed. The second number is how often it can adjust after that. A "6" means every six months.
7/6 ARM
Your rate is fixed for the first 7 years, then can adjust every 6 months, more early stability.
10/6 ARM
Your rate is fixed for a full 10 years before it can begin adjusting every 6 months.
Most ARMs today are still 30-year loans, the "5/6" or "7/6" just tells you how the rate behaves along the way. The longer the fixed period, the more early certainty you get, usually in exchange for a slightly higher starting rate.
The Math Behind Adjustments
Index plus margin, explained plainly
When your ARM starts adjusting, the new rate isn't random. It's built from two parts added together:
The index
A published benchmark rate that rises and falls with the broader market. Neither you nor the lender controls it, it reflects current economic conditions. When the index moves, the variable part of your rate moves with it.
The margin
A fixed percentage the lender sets when you close. Unlike the index, your margin never changes for the life of the loan. It's the lender's steady add-on to the index.
Index + margin = your new interest rate. For example, if your loan's index sits at a certain level and your margin is a fixed amount, your adjusted rate is simply those two numbers combined, then checked against your rate caps. Because the margin is locked at closing, the only moving piece is the index. Knowing your index and margin up front lets you understand exactly how your rate will be recalculated at every adjustment.
Built-In Guardrails
Rate caps limit how far your rate can move
An ARM isn't a blank check for your lender. Every ARM comes with rate caps, limits on how much your interest rate can change. They're your protection against sharp swings, and there are typically three of them:
1
Initial adjustment cap
Limits how much your rate can change at the very first adjustment, when the fixed period ends. This is often the biggest single jump, so this cap matters most.
2
Periodic (subsequent) cap
Limits how much your rate can change at each adjustment after the first one, so no single six-month reset can move your rate by more than a set amount.
3
Lifetime cap
Sets the absolute ceiling, the most your rate can ever rise above your original starting rate for the entire life of the loan, no matter what the index does.
Caps are disclosed to you before you close, so you can see the worst-case payment in advance and decide whether you're comfortable with it. Even in a rising-rate environment, your rate can only climb by these defined, agreed-upon amounts, never without limit.
Fit Check
When an ARM makes sense, and when a fixed loan wins
An ARM is a tool, not a trap. The question is simply whether the lower early rate outweighs the uncertainty later, and that depends on your plans.
An ARM can be a strong choice if you expect to be out of the loan before, or shortly after, the fixed period ends. If you plan to stay put for the long haul and want a payment that never changes, a fixed loan is usually the safer bet.
You may sell or move soon
If you'll likely move before the fixed period ends, you capture the lower rate and never reach the adjustments.
You expect to refinance
If you plan to refinance within a few years, an ARM's lower intro rate can save money in the meantime.
You expect rising income
If your income is climbing, you may be comfortable absorbing a possible future adjustment.
You want certainty instead
If you're staying long term and value a payment that never changes, a fixed loan is the better fit.
Weighing It
ARM pros and cons
A clear, two-sided look so you can decide with confidence.
Potential advantages
- A lower introductory rate than a comparable fixed loan
- Lower payments during the fixed period free up cash flow
- Your rate and payment can decrease if the index falls
- Rate caps limit how much and how fast the rate can rise
- A good fit if you plan to move or refinance before it adjusts
Trade-offs to consider
- Your rate and payment can rise after the fixed period
- Future payments are harder to predict than a fixed loan
- Plans change, you may keep the loan longer than expected
- Refinancing later isn't guaranteed and has its own costs
- The structure takes a little more effort to understand
Compare Your Options
Not sure? Look at a fixed loan too
For many Arizona buyers, the deciding factor is simple: how long will you keep this loan? If the answer is "a long time" and you want a payment that never moves, a fixed-rate mortgage is often the more comfortable choice. If the answer is "just a few years," an ARM's lower early rate can be the smarter play.
The good news is you don't have to guess. We'll put an ARM side by side with fixed options so you can see the real trade-offs before you commit.
Local & Personal
A Queen Creek broker who shops your ARM the right way
Because Howard Funding is an independent mortgage broker, we're not stuck selling one company's ARM. We put your file in front of 40+ wholesale lenders and compare their introductory rates, margins, index choices, and caps, then bring back the structure that actually fits your plans. Two ARMs can look similar on the surface and behave very differently once they adjust; knowing what to compare is where a broker earns their keep.
Chance Howard is known across Queen Creek and Gilbert for explaining the fine print in plain English. Whether an ARM or a fixed loan is right for you, you'll understand exactly what you're signing before you sign it.
Common Questions
Adjustable-rate mortgage FAQ
What does 5/6 or 7/6 mean on an ARM?
The two numbers describe the ARM's timeline. The first number is how many years your interest rate stays fixed at the start, 5 years on a 5/6 ARM, 7 years on a 7/6 ARM. The second number is how often the rate can adjust after that fixed period ends. A "6" means every 6 months. So a 7/6 ARM keeps one rate for the first seven years, then can adjust every six months for the remaining loan term, always within its rate caps.
How is my new ARM rate calculated after it adjusts?
After the fixed period, your rate is set by adding two pieces together: an index and a margin. The index is a published benchmark rate that moves with the market. The margin is a fixed percentage set by the lender at closing that never changes for the life of your loan. Index plus margin equals your new rate, subject to the loan's rate caps, which limit how much it can move at each adjustment and over the life of the loan.
What are rate caps and how do they protect me?
Rate caps limit how far your interest rate can move. There are usually three: an initial cap on how much the rate can change at the first adjustment, a periodic cap on how much it can change at each later adjustment, and a lifetime cap on how high the rate can ever go above your starting rate. These caps mean that even if the index rises sharply, your rate and payment can only increase by defined, disclosed amounts, never without limit.
When does an ARM make more sense than a fixed-rate loan?
An ARM often makes sense when you don't expect to keep the loan past its fixed period, for example, if you plan to sell or move within a few years, expect to refinance, or anticipate rising income. The lower introductory rate can save you money during those early years. If you plan to stay in the home long term and want a payment that never changes, a 30-year or 15-year fixed loan is usually the better fit. We'll model both so you can compare.
Can my payment go down on an ARM?
Yes. Because your rate after the fixed period is based on an index that moves with the market, your rate and payment can decrease as well as increase when the index falls, within the loan's caps. That's a key difference from a fixed-rate loan, where the payment never moves in either direction. Keep in mind that a fixed-rate loan can always be refinanced if rates drop, and an ARM can be refinanced too if that ends up being the better move.
This is not a commitment to lend. Rates and terms are subject to change and vary by borrower and property. Equal Housing Lender.
Ready when you are
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