5/1 ARM vs. the 30-Year Fixed : Pros and Cons

June 24, 2011
5/1 ARM vs. the 30-Year Fixed : Pros and Cons

Here we go again…it’s that special time where I compare two popular home loan programs to see how they stack up against each other. Today’s match-up: “5/1 ARM vs. 30-year fixed.”

Everyone has heard of the 30-year fixed-rate mortgage – it’s far and away the most popular type of mortgage loan out there. Why? Because it’s the easiest to understand and presents no risk of adjusting during the entire loan term.

It’s basically the default home loan option whenever mortgage lenders advertise interest rates, and the pre-selected option when using a mortgage calculator.

But what about the 5/1 ARM? Do you even know what a 5/1 ARM is? What the heck is that slash doing there!? This looks confusing…calm down, we’ll get through it.

What Is a 5/1 ARM?

5/1 ARM

Today's Rates
  • It’s an adjustable-rate mortgage with a 30-year term
  • That is fixed for the first five years
  • And adjustable for the remaining 25 years
  • It can adjust once each year after the first five years

Put simply, the 5/1 ARM is an adjustable-rate mortgage with a 30-year loan term that’s fixed for the first five years and adjustable for the remaining 25 years.

So during years one through five, the interest rate never changes. If it starts at 4%, it remains at 4% for 60 months. Nothing to worry about there.

But after the first five years are up, the interest rate can adjust once annually, either up or down. That’s where the “1” comes in, as in one adjustment per year.

This means it’s a hybrid ARM – partially fixed, and partially adjustable.

Whew! There you have it, the 5/1 ARM broken down into simple terms we can all understand. Oh, and don’t get hung up on that pesky slash.

While not as popular as the 30-year fixed, it’s a pretty popular adjustable-rate mortgage product, if not the most popular. And as such, just about all mortgage lenders offer it.

It’s an option for conventional loans, FHA loans, and VA loans (but not USDA loans). So you won’t have any trouble finding it. This should make comparison shopping quite easy too.

5/1 ARM Rates Are Lower. That’s the Draw

30 vs 5/1 rates

  • 5/1 ARM mortgage rates are cheaper than comparable 30-year fixed rates
  • Because your rate is only fixed for a short period of time
  • And can increase significantly once it becomes adjustable
  • The discount might range from .25% to 1%+ over time

The biggest advantage to the 5/1 ARM is the fact that you get a lower mortgage rate than you would if you opted for a traditional 30-year fixed.

You get a discount because your interest rate isn’t fixed, and is at risk of rising once the initial five-year period comes to an end. Of course, if you refinance your mortgage at that time you can avoid the rate changing.

As you can see from the chart I created above, the 5/1 ARM is always cheaper than the 30-year fixed. That’s the trade-off for that lack of mortgage rate stability.

But how much lower are 5/1 ARM rates? Currently, the spread is 0.63%, with the 30-year averaging 3.78 percent and the 5/1 ARM coming in at 3.15 percent, per Freddie Mac data.

Since Freddie began tracking the five-year ARM back in 2005, the spread has been as small as 0.27% and as large as 1.30% in 2011.

If the spread were only 0.25%, it’d be hard to rationalize going with the uncertainty of the ARM. Conversely, if the spread were a full percentage point or higher, it’d be pretty tempting to choose the ARM and save money for at least 60 months.

The Freddie Mac survey only covers conforming loans. The spread might be different for jumbo loans, depending on market conditions.

Either way, take the time to compare lenders since rates (and loan payments) can vary considerably, just like fixed interest rates.

Let’s look at an example of the potential savings of a 5/1 ARM:

Loan amount: $350,000
30-year fixed monthly payment: $1,626.87
5/1 ARM monthly payment: $1,504.08

So you’d be looking at a difference in monthly mortgage payment of roughly $122, or $1,464 annually ($7,320 over 5 years), using our example from above. Not bad, right?

This lower payment mortgage may also free up cash to pay off credit card debt, student loans, an auto loan, or any other higher-APR debt you hold, or for home improvements.

You’d also pay down your mortgage faster because more of each payment would go toward principal as opposed to interest. So you actually benefit twice. You pay less and your mortgage balance is smaller after five years (more home equity and a higher net worth).

After five years, the outstanding balance would be $315,427.87 versus $312,017.26 on the five-year ARM. That’s roughly another $3,400 in savings for a total benefit of nearly $11,000.

Discussion over, the ARM wins! Right? Well, there’s just one little problem…

It might not always be this good. In fact, you might only save money for the first five years of your 30-year loan.

After those initial five years are up, you could face an interest rate hike, meaning your 5/1 ARM could go from 3.25% to 4.50% or higher, depending on the associated margin, the rate caps, and the mortgage index. And the adjusted rate may not be affordable.

5/1 ARMs Are Cheap But Will Likely Adjust Higher

  • While the start rate on a 5/1 ARM can be enticing
  • Expect the rate to be higher in year six and beyond
  • Since ARMs typically adjust higher, not lower
  • But if you only keep it for a short time it can be a big money-saver

Currently, both ARMs and mortgage indexes are super low, but they’re expected to rise in coming years as the economy gets back on track, which it will eventually.

And you should always prepare for a higher interest rate adjustment if you’ve got an ARM.

In fact, during the loan application process mortgage lenders typically qualify you at a higher expected rate to ensure you can make more expensive mortgage payments in the future should your ARM adjust higher.

To that end, qualifying shouldn’t be any easier relative to fixed-rate mortgages.

So that’s the big risk with the 5/1 ARM. If you don’t plan to sell or refinance before those first five years are up, the 30-year fixed may be the better choice.

Although, if you sell or refinance your mortgage within say seven or eight years, the 5/1 ARM could still make sense given the savings realized during the first five years. And most people either sell or refinance within 10 years despite taking out fixed loans with 30-year terms.

The big question is where will refinance rates be when it comes time to make your move? And home prices.

If you came in with a low down payment and home values drop and it’s difficult or impossible to refinance, you could be trapped if you don’t sell your home. That’s the great unknown of going with an ARM – and trying to time the real estate market is nearly impossible.

Is a 5/1 ARM a Good Idea?

  • It really depends on what your plan is for the property
  • If you know you won’t keep it for five years it could be a no-brainer to save money
  • But if you plan on keeping your home for the long-haul and interest rates rise
  • There’s a chance it could cost you more money if your rate adjusts significantly higher

If you do decide to go with a 5/1 ARM, or any ARM for that matter, make sure you can actually handle a larger monthly mortgage payment should your rate adjust higher. Paying the mortgage with your credit card isn’t a good strategy.

Also realize that refinancing won’t always be an option; you may not qualify if your credit score goes down or your income takes a hit, or refinance rates may be too expensive to justify a refi. It’s never a guarantee.

If you actually plan to pay off your mortgage, an ARM loan could be a bad idea unless you seriously luck out with rate adjustments. Or you serially refinance before the ARM adjusts and pay extra each month to shorten the amortization period.

Otherwise, there’s a good chance you’ll pay a lot more than you would have had you gone with the 30-year fixed rate mortgage.

Why? Because each time you refinance to another ARM, you’re getting a brand new 30-year term. That means more interest is paid over a longer period of time, even if the rate is lower. If you don’t believe that, grab a mortgage calculator and do the math.

However, if you’re a savvy investor and have a healthy risk-appetite, the 5/1 ARM could mean some serious savings, despite the potential of the rate changing, especially if the extra money is invested somewhere else with a better return for your money.

Just know what you’re getting into first with this loan type and how high the rate can climb during the life of the loan.

Your financial advisor probably won’t recommend it, but that doesn’t mean it’s not a good deal. In reality, a ton of home buyers could probably benefit from an ARM because they don’t hold their mortgages for more than a few years anyway. So why pay more?

Five years not enough for you? Check out the 30-year fixed vs. the 7-year ARM, which provides another two years of interest rate stability compared to the 5/1 ARM. The rate may not be as low, but you’ll get a little more time before that first rate adjustment.

Or go the other way and check out the 3/1 ARM, which gives you two less years of fixed-rate goodness but might come with a slightly lower interest rate.

Pros and Cons of 5/1 ARMs

The Good:

  • Cheaper than 30-year fixed mortgages
  • Interest rate won’t change for a full 60 months
  • Rate can adjust lower or not at all
  • Might be able to refinance or sell before it adjusts higher
  • Could be a good choice if you have bad credit and want a lower rate
  • Can switch loan products once you’re more financially fit and have excellent credit

The Potential Bad:

  • The interest rate can adjust much higher
  • Five years can go by very quickly
  • Housing payments may become unaffordable
  • No guarantee you can sell your home or refinance before that time
  • Might cost you more money vs. taking a slightly higher fixed rate at the outset

Commonly Asked Questions

How much cheaper is the 5/1 ARM vs. the 30-year fixed?

As noted above, it depends on the spread between the two loan programs at the time you apply for a mortgage.

It can be quite minimal, just 0.25%, or more than 1% lower, depending on the interest rate environment and the lender in question. It’s very important to know the spread to determine if it’s worth the risk.

Is the 5/1 ARM due in full in just five years?

No, the five-year part just refers to the amount of time the interest rate is fixed. It’s still a 30-year loan. The rate doesn’t change during the first five years, but is annually adjustable for the remaining 25 years.

Can I get a 5-year mortgage?

I haven’t heard of a home loan with a term as short as five years, but that’s not to say it doesn’t exist, somewhere…

However, you can get a 10-year fixed, or simply pay extra each month to effectively pay off your loan in five years or less, if you wish.

What happens when the first five years are up on my 5/1 ARM?

Your interest rate will become adjustable, based on the lender-assigned margin and the mortgage index it’s tied to.

At that time, you can do nothing and simply accept the new fully-indexed rate (and corresponding monthly payment), or refinance your loan into something new. Some homeowners may sell before the five years are up as well.

Can a 5/1 ARM be refinanced?

Yes, assuming you qualify for the refinance. You can start with an ARM and move into a fixed-rate mortgage later, or go from an ARM to another ARM if you wish.

Can I get another 5/1 ARM after the first five years are up?

You sure can, again, assuming you qualify. Of course, you have to consider if rates are favorable at that time to do so. Also note that you’ll restart the clock with a fresh 30-year term if you do.

Can you pay off a 5/1 ARM early?

Like any other mortgage, you can pay more than the amount due and whittle down your outstanding balance and loan term.

It could even be a good idea if you want a lower balance at the time your loan is first scheduled to adjust. For example, the smaller balance might make it easier/cheaper to refinance thanks to a lower LTV.

Is this a risky loan program? Should I just stick with a 30-year fixed?

This is an age-old question that can’t be answered universally. For someone who plans to pay off their mortgage in full, a fixed-rate loan might be a better call.

Conversely, if you plan to sell or refinance in a relatively short period of time, the 5/1 ARM can be a real money-saver. The key is having a plan and knowing the risks involved, namely that the rate can increase, sometimes significantly.


  1. Belinda Hughes November 3, 2015 at 12:32 pm -


    I am 50, single and own my own home with a 30 years mortgage and I in 7 years in. I am considering a re-fi to a 5/1 Arm Loan to paid off in 5 years. I then want to sell and repurchase a different home using the proceeds from the sale. In your opinion, does the 5/1 make sense in this situation? If not, please explain

  2. Colin Robertson November 9, 2015 at 3:49 pm -


    A 5/1 ARM has a 30-year repayment period, it’s just fixed for the first five years and adjustable for the remaining 25 years. So not sure that would accomplish what you’re looking to do.

  3. Chrystal November 24, 2015 at 9:35 am -

    Can a 5/1 typically be paid off at 5 years or before without penalty? If we were to refinance at the 5/1 arm rate we could stack enough extra on the principle to pay off the balance within the 5 years. Basically, can you make extra principle payments on a 5/1 arm loan and pay it off early? Are there typically penalties for that?

  4. Colin Robertson December 1, 2015 at 12:05 pm -


    Yes, as long as there isn’t a prepayment penalty, which aren’t as common these days.

  5. nancy February 3, 2016 at 11:25 am -

    Hi Colin – We’re both in our 50’s and relocating to CA from AZ. We’re selling a house with a 30-year term at a horrible interest rate (never refinanced because we kept thinking we’d just sell) and now we don’t know what kind of mortgage we should get when we re-purchase in CA. We’re going down to one steady income from two while I freelance. We’re computer people, not finance people!

  6. Colin Robertson February 3, 2016 at 2:49 pm -


    Sounds like you’ll probably have to get a 30-year loan (as opposed to 15) if on a single income and moving to expensive California from much cheaper Arizona. You can go with an ARM as well (that also has a 30-year term) but the rate will only be fixed for some period of those 30 years, such as three, five years, seven, etc. The big risk is that it can adjust higher…the benefit is you get a lower rate and could sell/refinance before it ever adjusts. The choice is yours. Good luck!

  7. Hector February 10, 2016 at 11:45 am -

    Hi Colin,

    My wife and I are looking to purchase our first home with a VA loan. We, along with her mother who will live with us, will have a combined 3 incomes. The house is 250,000. We are unsure about whether to go with a 5/1 ARM or 30 year fixed. We do plan on making this our family home. However, we do not yet have much reserve funds. Would it be advisable to start with a 5/1 ARM and then refinance? What would be the best course of action?

  8. Jim February 10, 2016 at 8:57 pm -

    Hi Colin,

    My wife and I are two years or so into a 15yr fixed at 4% and are paying extra…we’re on pace to pay off the 230k balance in 6yrs. Does it make sense to refi to an ARM or any other type of loan to chip away at it even faster or cheaper?


  9. Colin Robertson February 11, 2016 at 3:45 pm -


    It’s possible it could save you money…or even a 10-year fixed with a lower interest rate. Just gotta do the math and consider the fact that if you do refinance to an ARM you’ll be at the mercy of a rate reset if you don’t pay it off as quickly as you plan to.

  10. Colin Robertson February 11, 2016 at 4:01 pm -


    The ARM might be cheaper now but that could change, and if you really plan to make it your “forever home” it could make better sense to stick with a relatively low fixed rate you know will never rise. But it’s ultimately your decision and one that nobody can make with certainty because we don’t know the future of mortgage rates. Also consider the costs of a refinance in the future and the fact that you’ll need to get approved for one (not always a slam dunk). Good luck!

  11. Louise February 13, 2016 at 5:00 pm -

    I am on track to retire in two years but just recently decided to save the extra mortgage payments instead of rushing to have a paid off mortgage. It would be the first time in my life I had any extra stash, but it will leave me paying a mortgage into retirement. A 5/1 ARM might save some interest now and lower the payment and give me 5 years to get it paid even in retirement. Is this a sound idea?

  12. Colin Robertson February 14, 2016 at 3:50 pm -


    A 5/1 ARM is a 30-year loan, it’s just fixed for the first five years. So it wouldn’t be paid in five years, but rather in 30 more years unless you paid it off early by making extra payments and/or a lump sum payment. Most financial experts advise against taking a mortgage into retirement, but it’s your decision.

  13. Adam February 16, 2016 at 11:17 am -

    Dear Colin,
    Im a first time buyer and 35 years old. I have friends telling me to aim for an FHA loan as the down payment is low. I want to buy a home that is about 100k and plan on paying it completely off within the 5 years. Would you say FHA loan or traditional 15 or 30 with 5/1 ARM? Which would benefit me more.

  14. Colin Robertson February 16, 2016 at 12:22 pm -


    If the home is only $100k the down payment required may not be much. And you can avoid mortgage insurance if you avoid FHA, which can save you a lot of money. FHA requires 3.5% down, some conventional options only 3%. Put down 20% and you avoid PMI.

    A 15-year loan will come with a lower interest rate and much less interest than a 30-year. The 5/1 ARM may be even cheaper, but you have to make extra payments to pay it off in five years. It’s still a 30-year loan so you have to pay extra to pay it off in five years. Do the math and determine what you put down, then narrow down your options by your goal of pay off.

  15. gary hill February 20, 2016 at 6:33 am -

    Colin,my partner & i are downsizing. We’ll walk away w/about 60 to 75 thousand after house is sold. He’s retiring in a year and i’m on disability. Looking to have a small mortgage($150000 or less) after down payment. Would like a monthly payment of $1300 or less(not including taxes,etc). The mortgage will be in his name-has credit score about 750. Was pre-approved w/Quicken for $180000. What’s our best option -5/1,10,15,etc. Really want to pay off quickly(partner’s 69 and i’m 60) Approximately,how much extra to pay off the 5/1 in 5 years. Say on a $130,000 loan at 4%. Thanks for any advice you can offer.

  16. Colin Robertson February 22, 2016 at 7:14 pm -


    A 5/1 ARM is still a 30-year loan, so you might be better off actually going with a short-term loan such as a 10-year fixed or 15-year fixed, etc. Of course you’ll need to make sure you still qualify with higher monthly payments on shorter-term loans. You have the option to do the 5/1 ARM, but you’d be subject to a rate adjustment after five years unless you paid it off (by making extra payments or a lump sum payment) before those five years are up.

  17. Tara April 9, 2016 at 11:38 pm -

    Hi Colin

    My husband and I are wanting to purchase our first home with a VA Loan. We are currently living in Hawaii (Oahu) and rent is very expensive so we want to put that money towards a home. We are only going to be here for another 2-3yrs at the most. Would the 5/1 ARM be our best choice since we plan to sell when we leave?
    We are very new at this so any advice would be really appreciated. Thankyou.

  18. Colin Robertson April 18, 2016 at 10:48 am -


    That can make sense but it can also backfire if for some reason you don’t or are unable to move as planned. Things don’t always work out as intended, but you can probably save some bucks with the 5/1 ARM. Gotta look at the pros and cons and potential pitfalls.

  19. RICARDO MOHAMED June 16, 2016 at 4:30 am -

    Hello i am a Veteran using my Certificate of Eligbility on a purchase of $412,500, i wanted to consider using a 5/1 Arm and have a much lower monthly, and then look at the possibilities of selling before the 5 year arm is up. What are your thoughts. Thank you. Also my loan officer is saying the current rate for 30 year fix is 3.66 for VA, is this the best and lowest 30 year fix rate for a Veteran purchasing a home today? and last but not least, explain the HARP program that President Obma has approved for home owners.

  20. Colin Robertson June 24, 2016 at 3:44 pm -


    It depends what happens – it could make a lot of sense and save you money if you actually sell before those five years are up, but it could backfire if things don’t go according to plan. Gotta see if the uncertainty is worth it…the savings that is. Hard to say if rate is good/bad without knowing all attributes of loan but in general 3.66% sounds pretty low. The HARP program is for existing underwater homeowners who owe more than their homes are worth.

  21. Harshil September 2, 2016 at 11:42 am -

    Hi I am first time buyer and thinking to get 5/1. What is a possibility to refinance the loan right after 5 years expire for another 5/1?

  22. Colin Robertson September 8, 2016 at 9:07 am -


    It’s a common move and perfectly feasible as long as you qualify for the refinance as you would any other subsequent mortgage. You’d also want interest rates to be favorable at that time…

  23. Micki January 2, 2017 at 4:48 pm -

    Hi, I am on a fixed income and purchasing a home for 65,000 with 30,000 down. I’ve selected a 30 year fixed rate but am wondering if that’s the best option. It seems that I will be paying approximately $28,000 in interest by the time it’s payed off. I have to keep payments low and wondered if a 5/1 ARM would be better for me.

  24. Colin Robertson January 3, 2017 at 9:46 am -


    The 5/1 could make sense if you think you can knock out that small balance fast, potentially before it resets higher to negate the savings of the ARM to begin with.

  25. Mark January 18, 2017 at 2:09 pm -

    Hello Colin

    I am possibly moving to the MA from Queensland, AUS.

    Our Mortgage products seem a bit different here and therefore I would like to ask just 1 question.

    On a $800,000 home with 40% down over 5 years fixed – I cannot find any lender who wants to take this, they only want 5/1 ARM or 10 year fixed minimum …. ?

    cheers Mark

  26. Debashis Roy January 19, 2017 at 1:23 pm -

    Hi Colin,

    I’m trying to buy my first home in the US. The purchase price is 662K. Its a presale having an estimated closing around 1st week of April,2017.
    I have been shopping mortgage recently and am getting very good rates for a 5/1 arm. But reading all the comments above, I’m not sure which way to go, since I’m planning to stay here for at least 20 years and I also want to have lower monthly payments.
    Kindly let me know if it will be a good option to go for a 5/1 now and refinance it later to a fixed rate(if that is possible). Also, what should I know about refinancing.

  27. Ed January 21, 2017 at 8:36 am -


    My wife and I are buying a investment home we will rent to our daughter and her husband until they sell their home.

    They currently live a few states away, own their home that is also an investment property (duplex) but have had difficulty selling because they live in a small community. They will have no difficulty renting the unit they now live in.

    The initial plan is that they either buy the home from us within 3-5 years or we sell it and they buy another home.

    The bank has suggested in addition to a 30-year loan, we look at the 5 year ARM–I am leaning that well as well. Do you see a downside?

  28. Colin Robertson January 24, 2017 at 9:47 pm -


    Right, here in the States we tend to have longer fixed-rate mortgages, with the shortest generally a 10-year fixed. My assumption is in AUS these fixed loans are refinanced at the end of the term, not actually paid off in full in just five years, kind of like how a 5/1 ARM would likely be refinanced into a new loan after five years, or sometime before that first reset (higher). In both cases, the loan isn’t paid in full, and new financing is needed, unless the ARM borrower is happy with the fully-indexed rate.

  29. Colin Robertson January 24, 2017 at 9:58 pm -


    As stated in the article, one of the pros of a 5/1 ARM is the lower interest rate, but it may reset higher after five years. At that point, you’d need to refinance (assuming you qualify for a mortgage at that time) or deal with the higher payments, assuming the payment resets higher. The 30-year could also be higher at that point, meaning you’d be stuck with a higher rate in either scenario, but it could also be lower or not much higher, meaning it’s a risk you can take for a potential reward. Your expected tenure and risk appetite definitely come into play.

  30. Colin Robertson January 24, 2017 at 10:00 pm -


    The downside would be if you are somehow stuck with the home after five years and the payment goes up significantly on the ARM at reset and 30-year fixed rates are also much higher. The upside is if you sell around five years or less you save monthly via a lower interest rate.

  31. Ashraf Mehdi February 8, 2017 at 4:23 pm -

    Hi Colin
    My Loan amount is 445K after 5% down Payment.
    Can I go for 5/1 ARM or 7/1 ARM using Jumbo loan.
    if yes, what will be interest rate.

  32. Colin Robertson February 8, 2017 at 7:31 pm -


    It depends on other attributes of the loan, such as credit score, property type, and if you pay points or get a credit. Could be quite a range, but rates for those types of ARMs these days might range from the mid-3s to the mid-4s for LTVs that high.

  33. Matt March 2, 2017 at 3:38 pm -

    Hi Colin,

    I am currently 2 yrs in to a 30 yr fixed and trying to find ways to lower my monthly mortgage payment. I just discussed a 5/1 with my mortgage broker, he said it would reduce my monthly payment by about $460 a month, which translates to over $5K of savings in a year. I was told that, after 5 yrs, the APR could increase by no more than 1% (or decrease by no more than 1%) if I wanted to stick with it. Or, I could refinance. It seems like a good option, but wondering what the potential downside could be?

  34. Colin Robertson March 3, 2017 at 10:20 am -


    The potential downside is if rates keep rising, your rate can keep climbing. I’d check on that 1% max increase after the first reset…usually the caps are 2% or higher. But a 1% initial rate cap could certainly limit the damages. Still, the rate could then rise another 1% the following year once the next adjustment hits and so on if you didn’t refinance again or sell. The other possible downside is if for some reason you’re unable to refinance and wind up stuck in the ARM. But the upside is the savings you mentioned…may want to compare it to the monthly savings with a fixed loan as well if you’re unsure about the ARM.

  35. Dory March 29, 2017 at 8:09 am -


    We are getting close to retirement and have started looking for a place to purchase. I found one that looks good financially…$55900. Need some work but we are fine with that. So we won’t sell our house until my husband retires in about 2.5 yrs at that point we could payoff the new mortgage. Would a 5/1 arm be the best way for us to go?

  36. Colin Robertson March 29, 2017 at 9:49 am -


    If you just need the mortgage for a short period of time and can pay it off in full, products like the 5/1 ARM are great because they’re fixed for that first five-year period and are priced lower than the 30-year. So you save money each month, pay down the loan faster, and ideally pay it off before it resets higher.

  37. Walter L. April 1, 2017 at 7:22 am -

    So I’m being relocated and am shopping for a mortgage for the new home. I’m considering 5/1 ARM for a few reasons: 1) I will be paying a lower interest rate for the first 5 years while my principal is high 2) once I sell my old home within a year I will initiate a curtailment to lower my principal 3) even if rate increases, it would be against a largely reduced principal 4) the mortgage interest I’ll be paying is tax-deductible 5) As last resort I can refinance depending on market situation.

    Are these reasons valid for seeking 5/1 ARM, or am I overlooking something? Thanks.

  38. Colin Robertson April 3, 2017 at 5:50 pm -


    Sure, those are good considerations to go with a 5/1 ARM. And you do note that if rates rise your prior savings will provide a buffer. The only real hitch with these things is if for some reason you’re completely unable to refinance in the future and rates surge higher.

  39. Dave L. May 2, 2017 at 6:18 pm -


    We are looking to re-fi our current mortgage and cannot decide if it’s better to go with a 5/1 ARM or a 30 Yr Fixed option. We plan on selling our home within the next 2 years. We are considering the 5/1 ARM over the 30 YR Fixed because I lost my job recently that paid 3 times what I am making currently. We are looking to eliminate some of our credit card debt while also decreasing our montly mortgage payments. Would you suggest we do the 5/1 ARM or continue to re-fi with another 30 YR Fixed option? What is the downside, if any, to us moving forward with a 5/1 ARM instead if we do plan to sell our home within the next 2 years?

    Best Regards,
    Dave L.

  40. Colin Robertson May 2, 2017 at 7:40 pm -


    Like I’ve mentioned to others before, the downside or risk is that you may not move as planned. As we all know, plans change. And if you stay put and your ARM happens to adjust significantly higher it could hit your wallet. But if you’re fairly certain you’ll move, you could potentially save some money with the 5/1. The 30-year fixed essentially provides security for the what-if, for a price.

  41. Jay May 8, 2017 at 11:49 pm -


    Great article. Explains a lot. I am a big risk taker, and I am pretty sure I can handle the cost if it goes up in 5 years. My question is, is it possible to refinance a 5/1 ARM every say 5 years for another 5/1 ARM or is that frowned upon?


  42. Colin Robertson May 9, 2017 at 7:33 am -


    There’s no rule against it and I’m sure people do it, but you have to be mindful of closing costs each time and understand that you’re resetting the amortization back to 30 years over and over. If you keep doing it you’ll find that you pay more interest over time.

  43. Cindy Smith May 22, 2017 at 12:58 pm -

    Hi Colin, I have a 5/1 arm loan which has had 2.125% interest rate for a few years. :-) It has incresed to 3% and I am curious what my new adjusted payment will be in Aug. Is there a way for me to figure that out? Also, do you know if my payment will stay the same for the entire year?

  44. Colin Robertson May 23, 2017 at 8:35 am -


    It should reamortize based on the remaining term and new interest rate. For example, if there are 25 years left you’d plug in 300 months and then the new rate (3%) to calculate the new payment. You can also ask your servicer directly to be sure. For a 5/1, this new rate should remain in effect for 12 months before its next adjustment. That’s where the 1 comes in…annually adjustable after five years of fixed payments.

  45. Deborah June 2, 2017 at 3:08 am -

    Hi Colin, I currently have an adjustable 5/1 and have been paying additional principal since day one. Regardless of the interest my payments starting year 6 have decreased when the annual adjustment in interest is calculated. In 2015 the rates remained the same and thus my mortgage payment also stayed the same for a two year period. My question is why would the bank not recalculate my principal and the same interest rate to reset as it does each year? I feel that the bank has made a mistake in not assessing the principal balance and it has cost me about 1,000 in interest that should have been recalculated. Not one person from the lending department can give me a solid response.

  46. Colin Robertson June 3, 2017 at 10:47 am -


    They aren’t taking the remaining balance and amortizing over the remaining period with the new fully indexed rate?

  47. Koree June 5, 2017 at 2:45 pm -

    How is the APR on an ARM higher on a purchase than a fixed rate APR?? I’m confused why an ARM would be higher, when on my purchase, I’m not wrapping in any closing fees, I’m coming to closing with all the down payment and closing fees. If APR, indeed is the “cost of doing the financing”

  48. Joseph Squires November 16, 2017 at 12:46 am -


    I’m no expert, but the knowledge you have on the subject makes sense to me also (they are confused as to what it should be). People get over on others.

    The only logical explanation is that somebody would choose that option of the 5/1 ARM to pay off the mortgage “faster” by paying more sooner and have to pay less later.

  49. Joseph Squires November 16, 2017 at 1:19 am -

    Inflation is a big concern for the upcoming 20 years ($15 minimum wage, etc., etc., causes money to be “worth less”). ALWAYS go with a fixed rate.

    ONLY go with a 5/1 ARM if you plan to sell the property after 3 years (not 5 years… because if nobody would purchase the property your rate would more than likely increase) OR

    ONLY go with a 5/1 ARM if you have a friend or family member who would also get a property and trade properties with you after each 5 years (basically only if you sell the property). This way, though, you and your friend could still have ownership of the properties at low monthly payments

  50. Colin Robertson November 16, 2017 at 10:03 am -


    Actually you could argue that you have more than five years to make a move because the savings realized during those first five years allow for a buffer even if rates rise.

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