What is a 5/1 ARM?

A 5/1 Adjustable-Rate Mortgage (ARM) is a unique mortgage loan option that offers a fixed interest rate for the first five years and then adjusts based on market rates every year after that.

This makes it a good choice if you're seeking a low monthly payment and don't anticipate staying in your home for an extended period. The rates on a 5/1 ARM are generally lower than those of a 30-year fixed-rate mortgage during the initial five-year period, making it an attractive option for short-term homeownership.

The "5/1" in 5/1 ARM signifies the length of the fixed-rate period and the frequency of rate adjustments. The "5" represents the initial five-year period where the interest rate remains fixed, while the "1" indicates that the rate adjusts once per year after the fixed-rate period ends. It's important to understand how the rate resets after the initial period to determine if this mortgage option is suitable for your financial situation. Despite the term "variable-rate mortgage" often being used interchangeably with "adjustable-rate mortgage," a true variable-rate mortgage, where the interest rate changes monthly, is less common.

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