ARM
Adjustable Rate Mortgage
What is an ARM?
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.
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.