A single-family home in Los Angeles. Allison Dinner/Getty Images
For those who took five-year adjustable-rate mortgages (ARMs) in 2021, the day of reckoning is about to take place. Others who have 10-year ARMs also will be scrambling as they both receive letters from their lenders that monthly payments are about to soar.
In the beginning, an ARM typically gives you a lower rate than a fixed mortgage. But this rate lasts for three, five, seven, or 10 years and then the rate adjusts. For those with a 5/1, they have a fixed rate for five years followed by a yearly rate adjustment. Each rate adjustment has the potential to increase the loan payment.
Familiarize Yourself With ARM Terms
When the initial fixed-rate period ends, an ARM rate will adjust at set intervals. This usually happens every six or 12 months.
