Before Choosing an ARM, Ask for These Three Payments
A simple payment comparison helps homebuyers see what happens after an adjustable rate mortgage’s starting period ends.
By Christopher Salem · 4 min read
Why this matters: An adjustable rate mortgage can make the first few years easier to afford. The useful comparison is whether your budget also works when that starting rate ends.
If you are shopping for an ARM this weekend, ask for three payments in writing: the starting payment, the highest payment at the first adjustment, and the highest principal and interest payment the loan can reach. That turns a conversation about a low introductory rate into a decision about your household budget.
Start with the date your payment can change
An ARM has an interest rate that can change under the loan’s terms. Many begin with a fixed period. Ask when the first adjustment occurs and how often later adjustments happen. Do not assume every loan changes annually. The CFPB’s checklist also calls for reviewing the index, the market benchmark used to set the rate, and the margin added to it.
Write down those terms before comparing offers. Two loans with the same starting rate can behave differently later.
Ask the lender to fill in these three rows
| Payment to request | What it helps you test |
|---|---|
| Starting monthly principal and interest | What the loan costs before its rate changes |
| Highest payment at the first adjustment | Whether your budget can absorb the first permitted increase |
| Highest permitted principal and interest payment | Whether you can keep the loan if rates rise further |
Rate caps limit the first adjustment, later adjustments and the total change over the loan’s life. They limit increases; they do not guarantee the resulting payment will fit your budget. The CFPB specifically recommends asking lenders to calculate the highest payment. Have the lender identify when each illustrated payment could first apply. These are contractual scenarios, not forecasts.
Video context: JJ Astorquia’s 5/6 ARM, margin and 2/1/5 cap figures are one lender’s examples, not industry standards. Caps and margins vary by loan, and refinancing is not guaranteed.
Keep taxes and insurance in the comparison
Principal and interest are only part of the housing bill. Add estimated property taxes, homeowners insurance, applicable mortgage insurance and association dues. An interest rate cap does not cap those expenses.
Use the Projected Payments section of your Loan Estimate and review the additional adjustable rate information. The CFPB’s Loan Estimate guide explains how to separate loan payments from other housing costs. Compare fees and lender credits too, rather than treating the smallest initial payment as the cheapest offer.
Test the plan without a refinance
Freddie Mac explains that an ARM may fit a shorter ownership period, while a fixed rate offers more interest rate predictability. Your planned move matters, but a plan to sell or refinance is not a completed transaction.
For buyers, the next step is to compare those three payments with a fixed rate offer and your available monthly budget. For loan officers, show the starting benefit and the later exposure together.
A useful borrower question: “If I still own this home when the rate adjusts, and refinancing is unavailable, what payment would I need to cover?”
Related context: Read our broader guide to using adjustable rate mortgages strategically.
Cover: Consumer Financial Protection Bureau entrance, Washington, D.C., photographed February 10, 2025. G. Edward Johnson, author website, via Wikimedia Commons (original file), CC BY 4.0. Cropped from the original archival photograph.
