ARM loans often begin with a fixed-rate period that typically lasts from 5 to 10 years. After that initial period, the interest rate changes (or adjusts) periodically. The variable rate fluctuates based on a reference interest rate (for U.S. Bank, the predetermined ARM index used is either the Secured Overnight Financing Rate or the U.S. Treasury rate as published in the Wall Street Journal), plus a set amount of interest above that index (called the ARM margin).
Use this ARM calculator to estimate your initial adjustable mortgage payment.
This mortgage payment calculator provides customized information based on the information you provide. But, it assumes a few things about you. For example, that you’re buying a single-family home as your primary residence. This calculator also makes assumptions about closing costs, lender’s fees and other costs, which can be significant.
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What is an adjustable-rate mortgage?
An adjustable-rate mortgage (ARM) is a home loan that starts out with a fixed interest rate, but after a period that rate becomes variable. They are also called variable-rate mortgages or floating mortgages.
Should you choose an ARM or a fixed-rate mortgage?
Wondering about the differences between an ARM loan and a fixed-rate mortgage? We’ll go through the pros and cons for each so you can decide which one is best for you.
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Get answers to frequently asked questions about adjustable-rate mortgages.
Adjustable-rate mortgages normally have a cap that limits how much the interest rate can increase over the life of the loan, and that cap is often 5%. That means that the interest rate can never be 5 percentage points higher than the initial interest rate.
An adjustable-rate mortgage has an interest rate that varies over the life of the loan, whereas a fixed-rate mortgage carries the same interest rate for the life of the loan.
After the initial fixed-rate interest period, the interest rate changes (or adjusts) periodically. The variable rate fluctuates based on a reference interest rate (U.S. Bank uses a predetermined ARM index, either the Secured Overnight Financing Rate (SOFR) or the U.S. Treasury rate as published in the Wall Street Journal), plus a set amount of interest above that index (called the ARM margin).
SOFR ARM loans use the Secured Overnight Financing Rate (SOFR) index to determine what the interest rate does after the initial fixed-rate period. During the adjustable-rate period, the rate becomes variable based on this index and a margin set by the bank. And while the margin does not change for the life of the loan, the index can vary, going up or down every six months. All ARMs set limits on how high or low the rate may go.
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