What Is an Adjustable-Rate Mortgage (ARM) in Real Estate?

An adjustable-rate mortgage (ARM) is a type of home loan where the interest rate changes over time based on market conditions. Unlike a fixed-rate mortgage, an ARM starts with a lower introductory rate that can adjust—up or down—after an initial fixed period.

🔍 How Adjustable-Rate Mortgages Work

  • Introductory rate: Fixed for an initial term (commonly 3, 5, 7, or 10 years).
  • Adjustment period: After the fixed term, the rate adjusts periodically—usually annually—based on an index like the SOFR or Treasury rate.
  • Rate caps: Limit how much the interest rate can increase per adjustment and over the life of the loan.
  • Lower starting payments: ARMs typically begin with lower rates than fixed-rate mortgages, making them appealing to short-term homeowners.

💡 Pros and Cons of an ARM

  • ✅ Pro: Lower initial interest rates and monthly payments.
  • ✅ Pro: Beneficial if you plan to sell or refinance before the first adjustment.
  • ⚠️ Con: Payments can rise significantly after the fixed period.
  • ⚠️ Con: More financial uncertainty compared to a fixed-rate loan.

🏠 ARMs and FSBO Sellers

Understanding whether your buyer is using an ARM or a fixed-rate mortgage can help FSBO sellers anticipate closing timelines and financing conditions. Buyers with adjustable-rate loans may move faster to close before rate resets.

If you’re listing FSBO, include clear financing notes when posting your property through a flat fee MLS package on Brokerless for maximum exposure.