Mortgage Glossary
ARM (Adjustable Rate Mortgage)
A mortgage with a fixed interest rate for an initial period, after which the rate adjusts on a defined schedule for the remainder of the loan term.
What is an ARM?
An ARM — Adjustable Rate Mortgage — is a mortgage with two distinct rate phases. During the initial fixed period, the interest rate is locked. After that period ends, the rate “adjusts” periodically based on a market index plus a fixed margin defined in the loan note.
ARMs are named in the format X/Y where X is the years of the initial fixed period and Y is the months between adjustments after the fixed period ends. The three most common structures TQL offers:
- 5/6 ARM — fixed for 5 years, then adjusts every 6 months for the remaining 25 years of a 30-year term.
- 7/6 ARM — fixed for 7 years, then adjusts every 6 months.
- 10/6 ARM — fixed for 10 years, then adjusts every 6 months.
ARMs are subject to rate-cap structures: there is a cap on the first adjustment after the fixed period, a cap on each subsequent periodic adjustment, and a lifetime cap on how high the rate can ever go. These caps are disclosed in the promissory note and the federal Closing Disclosure.
How ARMs apply at Total Quality Lending
TQL offers 5/6, 7/6, and 10/6 ARMs on a 30-year term across the DSCR, Prime Time, Multi-Unit DSCR, and Foreign National DSCR programs. ARMs are commonly chosen by investors with a planned exit (sale or refinance) inside the fixed period, or by borrowers who want the lower introductory rate and accept the post-fixed-period adjustment risk.
FAQs
What does 5/6, 7/6, and 10/6 mean?
The first number is the years the rate is fixed. The second number is the months between adjustments after the fixed period ends. So a 5/6 ARM is fixed for 5 years, then adjusts every 6 months for the remaining 25 years (on a 30-year term). A 7/6 is fixed for 7 years; a 10/6 is fixed for 10 years.
Why pick an ARM instead of a fixed rate?
ARMs typically offer a lower introductory rate than 30-year fixed loans. For investors planning to sell or refinance within the fixed period (e.g., a BRRRR who plans to refi in 18 months, or someone selling at year 4), an ARM captures the lower rate without ever experiencing an adjustment. Investors planning a long hold should generally stick with fixed.
How much can the rate adjust?
ARMs are capped at the initial adjustment, at each subsequent periodic adjustment, and over the loan's lifetime. Specific caps vary by program — your loan officer will model the worst-case rate scenario before you commit to an ARM structure.
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