An adjustable rate mortgage (ARM) has an interest rate cap. This article will explore how much an ARM mortgage interest rate can go up after the introductory fixed rate period is over. In general, the average maximum ARM adjustment up during the first year is 2%. Due to the limit in how much interest rates can go up, getting an ARM isn't as risky as it might seem.
I've been a fan of the Adjustable Rate Mortgage since I first bought property in 2003. More than 20 years later, I'm still a fan of the Adjustable Rate Mortgage. It helps homeowners save more on interest compared to a 30-year fixed.
What Is An Adjustable Rate Mortgage?
An Adjustable Rate Mortgage (ARM) is simply a mortgage that offers a lower fixed rate for 1, 3, 5, 7, or 10 years. It then adjusts to a higher or stays flat after the initial fixed rate is over. I take out 5/1 ARMs because five years is the sweet spot for a low interest rate and duration security. there are even 5/5 ARMs.
Fear of an excessive interest rate increase after the fixed rate period is over is the main reason why most homeowners take out a 30-year fixed mortgages. The other reason 30-year fixed mortgages are more popular is because banks have more wiggle room to earn a higher profit margin.
An Adjustable Rate Mortgage Has An Interest Rate Cap
What's important to realize is that there is a cap on how much the interest rate can increase during the initial adjustment period. There is also a lifetime cap on your mortgage interest rate if you decide to hold and not refinance. Finally, none of these caps may ever be realized if the 10-year Treasury bond yield or LIBOR doesn't increase.
I'm a believer that mortgage interest rates will trend lower for a long time because US Treasury rates will stay low for a very long time. Interest rates have been steadily coming down since the late 1980s due to technological efficiencies and globalization. Yes, there was a mortgage interest rate surge during the pandemic, but I expect Mortgages to come back down again.
Therefore, taking out a 30-year fixed mortgage where you pay a 1% – 2% higher interest rate is suboptimal. An adjustable rate mortgage is better than a 30-year fixed if you want to save money.
Remember, ARMs are different from negative amortization mortgages where the principal balance increases rather than decreases over time. Let me use my latest 5/1 ARM mortgage refinance to explain.
Example Of My ARM Refinance
What was refinanced: $981,000 mortgage at 2.625% with a monthly payment of $4,318. Principal portion of mortgage payment: $2,200. Interest portion: $2,218.
New mortgage: $850,000 at 2.375% with a monthly payment of $3,303.55. Principal portion of mortgage payment: $1,621.26. Interest portion: $1,682.29. I paid down a little over $130,000 in principal to qualify.
Study this chart below.
The Maximum Interest Rate Increase Of An Adjustable Rate Mortgage
Notice the maximum my payment can go up is to $4,098 from $3,303.55 in the 6th year (1st year of adjustment). $4,098 is equivalent to a 2% interest rate hike to 4.375%.
There's another 2% maximum increase in the seventh year, whereby my monthly payment rises to $4,955 based on 6.375%. Finally, the maximum lifetime interest rate increase is 5% from my initial base level, or 7.375%.
This 2%/2%/5% lifetime interest rate increase is pretty standard for all ARM holders. In other words, there is no such thing as endless interest rate risk to ARM holders. Simply ask your bank what your interest rate caps are and your index, and margin e.g. LIBOR + 2.25%.
If Mortgage Rates Go Higher After The Adjustment Period
I don't think we'll ever get to 7.375% again in our lifetimes for a 5/1 ARM. But even if we do, paying $5,400 a month is not that big of a deal. My mortgage used to cost $6,800 a month 10 years ago when my principal balance was greater and when my initial interest rate was closer to 5.25%. Anybody who has owned a home for at least 10 years knows this.
The continued decline in rates for the past 35 years has been a boon for all homebuyers and homeowners. The market is softening now. But if you can find a good deal, can afford the payments, and know you plan to stay there for 10+ years, I'd rather get neutral inflation by buying than renting.
Reasons why you shouldn't worry about hitting your interest rate caps:
1) Depending on your interest rate, after five years you've paid down about 10% – 12% of your original principal balance. 10 – 12% less in principal means 10 – 12% less interest to pay. Consider this your interest rate buffer.
2) You can always “save the difference” in interest or cash flow savings with your 5/1 ARM payment versus if you took out a 30-year fixed. After 60 months of saving the difference, you'll have a nice cash buffer in case you have to pay a higher interest rate. If I refinanced to a 30-year fixed at 3.625% instead of a 5/1 ARM at 2.375%, I'd be paying ~$82,000 more interest after five years. $82,000 equals 20 months of mortgage payments I've saved up. That's an enormous leeway.
3) You can always pay down extra principal over the years. If you're not satisfied with the automatic monthly mortgage pay down, you can always come up with a plan to pay down extra principal each month, quarter, or year during your fixed rate period. And if you're really gung ho, you can just pay down the entire principal before the adjust period is over. I've always just lobbed an extra $1,000 – $5,000 after a particularly good month or a bonus. The extra payments add up nicely.
More reasons why an adjustable rate mortgage is better
4) You will likely have a chance to refinance at some point before the fixed rate period is over like I just did after four years and two months with my previous 5/1 ARM. There will always be market volatility, especially in a five year window. When the stock market is crashing, the bond market is rising, and interest rates are falling. These are the best times to take advantage.
5) You already know the worst case scenario for your monthly payments. Once you know the worst case scenario, you will no longer be surprised if it happens. You'll do things that will naturally protect you from downside risk. In fact, I might just start paying $5,400 a month (maximum payment at 7.375%) to get a feel of the worst case scenario now.
At $5,400 a month, $3,718 of that goes to paying down principal. After five years, I will have automatically paid down $223,000 in principal, leaving me with only $627,000 to refinance. Even if I was so unlucky as to face a 7.375% rate, my new mortgage would still be a manageable $4,331 a month.
The reality is, there's no rush to pay down your ARM before it resets. By the time your ARM does reset, your payment will likely be not much higher than it was, if at all. There's a good chance your new ARM payment may actually be lower given you've been paying down a lot of principal during the introductory rate period.
An Adjustable Rate Mortgage Is The Way To Go
It's absolutely fine to refinance your 30-year fixed mortgage into a lower interest rate 30-year fixed mortgage. Taking advantage of this low interest rate environment is a wise move. But if you really want to save money, then I believe refinancing into a 5/1 ARM or purchasing a home with a 5/1 ARM is the way to go.
After 13 years of being an adjustable rate mortgage holder for various properties, I've saved around $500,000 in interest expenses so far. Each year that goes by I will probably save another $30,000 – 40,000 in interest expense by borrowing with an ARM than with a 30-year fixed mortgage. This is real money that can be used to live a more comfortable life or reinvest.
Despite taking out a 7/1 ARM in 2020 and seeing mortgage rates shoot higher in 2022 and 2023, I have no regrets. I'm confident by the time my ARM adjusts in 2027, mortgage rates will be back down to trend. By then, I'm also confident property prices will be much higher that paying a higher payment won't be a big deal.
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I think the monthly payment example is comparing apples and oranges. Your fixed payment was based off $980K mortgage and you paid an extra $130k down to get to 2.375% ARM. Why not compare $850K mortgage at 2.375% ARM to a $850k mortgage at 2.625% fixed rate. If your mortgage was $850k at fixed rate of 2.625% your monthly would be $3,436 versus the ARM monthly payment of $3,303. In this scenario you’re paying $133 more dollars, to not worry about if the rates will go up in the next 5 years. Rates are historically low mainly because the government is artificially doing it, and the trend is going to go up because the fed already told us they’re going to increase rates slowly. I get the spreads, but in this current market, there isn’t much of a difference to make me think about doing an ARM.
My ARM just expired and has reset. It could go as high as 12%. The rate increases based on LIBOR. How high do you think my rate could possibly go? Should I refinance or let it the reset continue if it likely won’t go very high?
See: https://www.financialsamurai.com/how-much-can-an-adjustable-rate-mortgage-arm-go-up-after-the-fixed-period-is-over/
I just signed up for a 7 year arm. Figure in 7 years if I am still itching to pay it I can get a 15 year mortgage. Therefore will have a 22 year mortgage instead of the traditional 30 year mortgage.
Hi Sam – love your blog! Question for you – why not do a 15 yr fixed and get the best of both worlds – fixed rate and a rate that is lower or close to the 5/1 arm? Presumably, if you have the cushion to save the difference between a 30 year and a 5/1 arm, then a 15 yr should be feasible. Just a thought and would be curious how the math would play out in that scenario. Thanks!
Hey Sam,
Great article, you are correct about the fear most folks have regarding ARM loans. Many of our friends gave us the stank-eye when we told them we were going with an ARM. We purchased our current home three years ago (this Saturday) with a 7/1 ARM at 2.375%. It is incredible how much we are saving in interest charges. We use the money from one of our rentals, that is unencumbered with a mortgage, to pay down the principal every year. We currently pay down $50k in principal on a yearly basis. At that rate, we will be down to approx. $30k balance when the loan is set to adjust in 2020.
I have also toiled with the option of letting the mortgage ride for awhile when the principal balance gets down to $100k – $150k. At 2.375%, this is almost free money and I might have better places to use my excess cash.
I can certainly understand folks on a shoestring budget that are not interested in an ARM loan, due to concerns over an unpredictable mortgage payment. However, there are many consumers who could greatly benefit from the flexibility and savings of an ARM loan. I believe the sweet spot with an ARM loan is about 7 years, a time-frame that seems like a lifetime when it comes to a mortgage.
Thanks for the article, hoping this will shed some light on the benefits of ARM loans.
Stephen
I think your main point is correct about people not considering ARMs strongly enough. Given that the majority of people are out of a home within 10 years, and a significant number move within 5 years, it really would be a big saver. Even several people I know with banking experience shy away from ARMs, which to me just shows a lack of understanding.
It’s hard to say if rates will stay this low forever, but if people simply calculate their “worst-case scenario” ahead of time then it shouldn’t be too much of an issue if anything does happen.
I think a lot of people can’t handle anything that isn’t “fixed”. The word to them is synonymous with “guaranteed”. Take that away, and they think their money will disappear overnight. They think the same way with an ARM.
The stories of 2008-2009 foreclosures tend to follow the same theme. People got risky and dangerous ARMs instead of the nice, safe fixed rates, and when poop hit the fan, the mortgage rates skyrocketed beyond what they could pay (or I think they skyrocketed before the economy bottomed out; either way, same deal). The ease of subprime borrowers getting approved, people buying homes they couldn’t reasonably afford, and mortgages with negative amortization all certainly played a part in things too.
You’ve definitely got me thinking about ARMs, Sam. I’m looking to buy property soon and am considering an ARM to help mitigate the extra costs of an FHA loan (it would take me a minimum of three years (which I don’t have) to afford the down payment and closing costs without the FHA). Like you, I’m betting on interest rates being lower for longer. I constantly get emails at work about our annuity rates going down. The days of high interest rates–deposit AND loan–are gone for good.
Sincerely,
ARB–Angry Retail Banker
I too am on the ARM for life (or at least 10 years) bandwagon. Even if we had a beautiful picture painted for us economically, it would still take at least three years to get us from near ZIRP levels up to 5%. In that time you could easily refinance into another mortgage for more security.
I didn’t get people’s fear except that many people had ARM’s during the housing crisis. But just as many had 30 year fixed. They foreclosed because they took on too big of a debt at too large of an interest rate, not because the evil bank man sent their interest rate from 7% to 13% in a year.
Great article. I have a general mortgage question, appreciate anybody’s help. If you lock a rate with one bank, then a competing bank offers you a lower rate, can you break the lock with the first bank? Any fees involved? How much time do you have to break the lock? Thanks.
And this is for a refinance, not a new mortgage. Thanks.
Most lenders won’t charge you for breaking a lock if a better rate comes around. Be careful with that approach if you’re already approved though. Anyone can quote you a lower rate, but not everyone can close you at that rate or without charging discount points.
Hi Sam! I’ve been reading your blog for a year or so now and thought I might give a comment:
For any institution, higher leverage means higher cost of debt. My only fear (however far into the future it is) is the case of US sovereign debt skyrocketing until we see the US credit rating take a beating.. with the worldwide love of “big government” today, who knows how far deficit spending will go.
Anyway, the yield on the 10-year Greek treasury is 8%, and at least they have big brother(s) in the EU to guarantee the payment of some of that!
Do you think a time will come where high US gov’t debt could impact it’s cost to borrow (and the price of treasury bonds, and ultimately the citizens’ cost to borrow)?
Howdy Drew, thanks for reading and sharing my work.
I’m not sure your statement on US sovereign debt skyrocketing until… is correct. Treasury prices are rising as foreigners buy our safer debt if that’s what you mean? But from an American debt issuer’s standpoint, our debt cost has never been cheaper. People will give us money when we issue 10-year bonds, and all we have to pay them now is <1.5%!
B/c everything is relative in finance, and interconnected, and b/c we can print money, I don't see US Treasury interest rates ever skyrocketing. If we decide to start a war then yes. If Trump becomes President, I'm sure foreigners will flee due to uncertainty. But US is the definition of sovereign. Arrogant words, but the truth.
I see what you’re getting at. I just don’t want the government to become like Greece’s – unable to pay its debts. Thanks for all the advice (and such a quick reply).
My first Mortgage in 2004 was a 7/1 Arm. I was good with it at that time because it could only adjust up to 10.875%. I regretted it in 2009 when it could have adjusted down if only I had taken out a 5/1 arm. I didn’t get a downward adjustment until 2011. I guess I could have re-financed but I don’t think overall it would have made a difference in the end as any gains from the fixed part I got when my rate finally adjusted.
Yeah, it’s hard to get the timing exactly right. Who knew there would be Armageddon from 2008-2010. But regardless, you saved money over getting a 30-year fixed, so that’s good.
Hey Sam-
I’ve gotten your opinion a few times over the last few months as I’ve been going through the home buying process in the NYC burbs.
My close date is 8/16 and I’ve yet to lock in a rate. Time is ticking. Your thoughts on the latest numbers please. Thanks in advance!
7/1 is at 2.5% with a refund of appraisal fee (~$700) and an additional $946 credit towards title fees, as well as a $650 gift card.
10/1 is at 2.75%
-OR-
10/1 at 2.875% with a refund of appraisal fee and an additional $1,896 credit towards title fees, plus the $650 in gift cards.
I grew up moving fairly often and don’t see myself living in this house forever, likely just 7-10 years. Then again, the NYC burbs are incredibly pricey (I’m spending nearly a million bucks on my first home at age 32) and frankly don’t even know how much more I can really upgrade, although who knows where my career will go in the next 7+ years. I’m tempted to go with the 7/1 for the sweet rate and credits, but also would love the security of an extra 3 years. Then again, is it really worth an extra 3/8th’s?
Thank you for the awesome article and any opinions you can offer.
PS – US Open this year? Any plans to get out here again?
7/1 for 2.5% is a great rate with those refunds. I’d go with that, as I’m partial to a 5/1.
5 years is a long enough time where so many options arise to refinance, pay down, sell etc. 7 years means there will simply be even more options.
A lot of folks forget their incomes go up in a 5-7 year period as well. It’s good not to count on an income increase, but thanks to inflation, incomes generally do rise, especially for people in the 20-40 range.
I’m gonna hit up the US Open again for 10 days this year after the French in May. Should be fun!
I had no idea that there was a cap on how high the interest rate could adjust. This is super useful information. This makes me a lot more comfortable with idea of an ARM. Thank you.
I’d also point out that if interest rates do go back up it could easily be because economy is doing better, stock market rising, job prospects improving, etc. In this case, I would assume that even a higher interest rate – though difficult to handle on a large mortgage – can be at least partially offset by better income opportunities from other sources.
Question: I currently have a 7/1 ARM and looking to refinance. Why is the 10/1 ARM even cheaper than 7/1 ARM (same rate, lower points), at least at BofA? Also, is there any good reason that non-cash out refis are at a higher interest rate than new purchases? Any chance of getting this negotiated away?
Exactly. Higher rates usually means higher incomes, higher asset values due to higher demand.
If the 10/1 ARM is cheaper than the 7/1 ARM, go w/ the 10/1 ARM. You have an inversion, which is a signal BoA finds it more risky to lend money 10 years out than 7 years out.
Hi Sam,
I recently refinanced to a 7 year ARM. The 5 year rate was very similar and I guess I did a 7 year to give myself more buffer time to refinance when the rates are hopefully low again in that future time. I like the idea of “saving the difference”. Especially these days when the stock market is volatile, there may be good buy opportunities to take that incremental mortgage savings and invest it!
Don’t forget that:
1. The average loan is kept for 7-8 years.
2. If in 6 or 7 years your mortgage payment adjusts higher you’ll be making more on your savings and CD accounts as well anyway.
Agree. And the value of your house will probably rise as well bc rates go up due to inflation and strength in demand.
While I agree with most of this post, and am an ARM fan myself, it should be pointed out that by taking out an ARM you are inherently exposing yourself to banking credit risk through LIBOR. One year ago 3m LIBOR was @ ~.28%; today it’s .65%. At the same time the 10yr Tsy has rallied from ~2.25% to under 1.40%. Any flight to quality trade if a crisis does re-emerge would cause stress in the banking industry, leading to a spike in LIBOR while at the same time a further rally in Treasury rates. So you do expose yourself to that risk and that’s a risk that one should be aware of when deciding on ARM vs FRN.
And note that LIBOR hasn’t increased due to these reasons yet — it’s increased due to a combination of Money Market Reform (driving money out of Prime Funds and into Gov’t Funds which then pulls money out of traditional cash providers who would normally lend to banks via repo) and the Fed hike from 6 months ago. Not because of shenanigans or crooked fixings. Also note that the Fed has rolled out a new banking rate called OBFR which will probably (at some point) replace or serve as an alternate to LIBOR/Fed Funds as a floating index sometime in the future.
The yield curve continues to flatten. Over 25% of the world’s GDP trades with negative rates. Central banks are buying more assets in 2016 than any year prior (crazy to think about considering how the Fed was buying $85 billion a month just a couple years ago). Switzerland’s 50 year point on the curve trades negative. Japan’s 20 year point now trades negative.
The point is there is a huge bid for duration and cash products, and that’s something to consider when debating between different ARM products and their respective floating indexes.
The rates on ARMS are always so attractive. I personally go with the 30 year fixed though not because of fear of the rate increasing in 5 years but because of the fear of not being able to refinance in 5 years due to any unforeseen circumstances financially.
I would hate to be forced to refinance and not be able to because of something bad happening to me financially. You know what i mean?
I’m now looking at refinancing my home mortgage, and so I’ve been reading all the Financial Samurai recommendations about it. I do agree ARM’s are great options today, and a definite no-brainer for someone who plans to pay off the loan during or shortly after the initial fixed term (by moving and selling the house, for example).
Still, I’ve decided that for my situation I prefer a 30-year-fixed. The main reason is because I plan to own the house indefinitely (even if I might not continue to live there indefinitely), and because I think there’s some chance I will not pay off the loan before the end of the 30 year term.
I do share FS’ believe that rates will remain low for a long time, but if LIBOR goes up just one or two percent over the next 10-15 years and stays at that level, which I think is not unlikely over such a long time-frame, then that could be enough to wipe out any saving from the initial low-rate period.
I’d be interested to hear what Financial Samurai thinks about my reasoning.
I think you must do whatever makes you feel comfortable. LIBOR can certainly increase, but that is only if the Federal Reserve and global central banks also decide to raise interest rates. But it seems very clear to me now that we are facing more potential deflation then inflation. Just look at global bond yields. I think more than 20 countries have their long bond yields at 0%.
One thing I often see is people thinking they want to own their house forever, but never die bc life or desires get in the way. The stats say 7 years is the median holding period. I believe it.
Thanks for the reply, FS.
My choice of fixed-rate does have a lot to do with my own personal comfort. There probably is a good chance that global central banks will keep the LIBOR down over the next couple decades, and that an ARM will end up being the better choice in hindsight, and even if not it would probably only mean an extra few hundred per month. I also need to consider what might happen in my own future (Will my income go up or down? Will I have trouble re-financing?) Given the possibilities, I do feel more comfortable to not take that sort of risk with my primary residence.
As far as staying with the house, point taken about the median holding period, but I’m pretty confident that I’ll stick around. I’m in San Francisco, actually just a few miles from your place. I grew up here, and want to raise my children here. I’m very confident in the area’s long-term economic prospects, and I realize it’s a very hard market to break into. That’s why I wouldn’t want to give up property here unless I really needed to.
You have definitely made me rethink this for my rental properties. I felt with rentals it is best to know your expenses, with the rate adjusting it adds another variable where you could get yourself in trouble.
But as you said in point #2 above, you could use the savings to add an extra buffer. I’m going to think hard about this when I refinance later this year. Perhaps I’ll do a 5/1 ARM now while building my portfolio, but down the line can always go back to fixed rate for the certainty as I pay things down.
Brian,
How many mortgages do you hold in your name? In my experiance ARMs are an option for mortgages 1-4, but I have not found a lender who will offer an ARM on mortgage 5-10.
I am in process of closing on a property in my wife’s name, such that it falls within the 1-4 underwriting standards. a 5/1 ARM at 3.125% was available, but required paying 3.375 discount points!! We settled on a 30yr fixed @ 4.125% with no discount points.
Sam,
I plan to be financially free and not work after 5 years. In such a scenario would 5/! ARM still be a wise choice because my worst fear is that I will be unable to get a loan with no W2 income?
For reference my current loan balance is $280K with a 30yr fixed at 3.375%
It depends how much you are earning and passive income, how much cash you have, and whether or not you can afford the interest-rate Payment. If you are financially free in five years, wouldn’t that mean that your passive income can cover all expenses?
Passive income is projected to cover current monthly payment and possibly the increase. But I would seriously hate paying the bank 4% more from the current level which would be approximately twice as much
In answer to your question, I would assume most people don’t realize that there are interest rate caps on ARMs. They tend to make decisions without analyzing all the factors. They assume that with interest rates so low, they should lock-in that rate, thinking that rates may go back up again.
I just finished working with a private finance client who put an interest rate swap on a floating commercial mortgage back in 2008. LIBOR was about 4.5% back then and the client was worried about it increasing. Obviously, just the opposite happened.
People tend to be more risk adverse than reward seeking, especially with large expenses such as a mortgage. As such, they will pay a locked-in higher rate rather than pay a lower rate with the risk that they could eventually pay an even higher rate.
Interest rate swap on a floating commercial mortgage….. love those words! Might be a post in the making!
20somethingfinance just posted an article entitled , “hosting bubble 2.0”, I wonder if your take that the housing mkt is softening now is influneced by the San Fran experience Sam. In Florida the mkt is on fire right now , probably because of the new lows in interest rates and relaxed mortgage standards
I’m more in agreement that there’s another housing bubble driven by low interest rates. I see higher rates definitely happening in a decade or so , low rates can’t last forever
I’ll happily make a bet regarding higher rates 10 years from now. I’m seven years into a 10 year bet where people thought the tenure-year-old would be at over 5% after the year 2019.
What interest-rate do you think the tenure you will be in 10 years? I’m happy to bet anything reasonable with you.
The housing market has been softening for about a year now. And I foresee it to continue softening for the next couple years. But the drastic collapse in interest rates is more than what I expected, and it should help soften the landing. Thanks
I’m gonna say 5% on the 10 year in 10 years. I know i could make that bet in the futures market at far below that rate, so I can’t bet money haha. But still, I don’t see this extended period of low inflation in front of us. There are too many unknowns with this level of central bank easing.
Is the market softening nationwide though? Because in the South it seems to be getting to a fever pitch level
Done! I will take the under on 10% in 10 years from this date. If we breach 5% at any point from now until then, you win too.
$200?
Pending home sales data from NAR are pointing to a national slowdown (as well as by region). Just one datapoint, but it’s generally seen as a leading indicator.
https://www.realtor.org/news-releases/2016/06/pending-home-sales-skid-in-may
The strength/weakness of real estate markets undoubtedly vary be location, but as we saw in the recent past, national trends can develop as well.
There is no doubt there is a national slowdown in real estate. Anybody who says otherwise is either a realtor trying to sell you a house, or is just seriously misinformed.
I read a massive amount about real estate, write about real estate, and speak to agents, buyers, and sellers all week. I’m obsessed, just like I’m obsessed with FS. And I also want my readers to be as informed as possible.
Great post Sam. When I bought my primary almost 2 years ago, what I did was build a spreadsheet comparing total costs associated with a 30yr fixed compared to a 5/1 ARM and 7/1 ARM based on worst case scenerio assumptions (largest rate increases permitted under ARM terms).
The inflection point for when the 30yr would cost least was out around 13 years into the loan. The inflection point is likely even further out, as my calculation didnt account for time value of money of defering the higher payments until later in the life of the loan, nor the low probability of actually experiancing the worst case scenerio.
Since I dont plan on living in my home for more than 13 years, the decision was pretty easy, the 5/1ARM made the most sense.
I think the unknown (and math) scares people and that’s how a 5/1 ARM is viewed. The idea that the interest rate will go up at all makes people a little queasy. However, you’re right in the fact that interest rates are super low and have been for a long time now. Heck, our parents remember when mortgages were 12%! If more people saw your example, they might be on board with 5/1 ARMS.