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5/1 ARM vs. 10/1 ARM: How to Choose

When considering a 5/1 vs. 10/1 ARM, the biggest difference is how long your initial fixed interest rate will last: five years with a 5/1 ARM and 10 years with a 10/1 ARM.
April 26, 2019
Finding the Right Mortgage, Mortgages
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If you’ve decided to get an adjustable-rate mortgage, the next step is to choose a term. The 5/1 ARM and 10/1 ARM are among the most common rate adjustment terms.

Adjustable-rate mortgages have interest rates that adjust each year after an initial fixed-rate period. Adjustments can increase monthly mortgage costs. ARMs are best for home buyers who expect to repay or refinance their mortgage before the initial fixed interest rate expires — for example, after 5 years with a 5/1 ARM and 10 years with a 10/1 ARM.

» MORE: Compare ARMs to fixed-rate mortgages before you decide.

What is a 5/1 ARM mortgage?

A 5/1 ARM mortgage is what’s known as a hybrid adjustable-rate mortgage: It involves both fixed and adjustable interest rates. With a 5/1 ARM, your initial, or introductory, interest rate remains unchanged for five years. After that, the rate will adjust once a year based on current market levels.

Once the initial fixed interest rate expires, 5/1 ARM rates can — and often do — increase, leaving you with a bigger mortgage payment. ARM caps place limits on the size of these potential interest rate increases, but they vary by loan and lender.

» MORE: See today’s 5/1 ARM mortgage rates

What is a 10/1 ARM mortgage?

A 10/1 ARM is another type of hybrid adjustable-rate mortgage. With a 10/1 ARM, your initial interest rate will remain the same for 10 years. After that, your lender can adjust the rate, based on market conditions, on an annual basis.

Choosing a 5/1 ARM versus a 10/1 ARM is all about timing.

Once the initial fixed interest rate expires, 10/1 ARM rates are allowed to change. Sometimes they decrease, but more often they increase and mean a much larger mortgage payment, like with a 5/1 ARM. If your lender incorporated an ARM cap into your loan terms, it can give you an idea of just how big the interest rate increase may be.

5/1 ARM vs. 10/1 ARM rate adjustments

Choosing a 5/1 ARM versus a 10/1 ARM is all about timing. To select the right loan, you’ll need to make some predictions about the next five to 10 years of your life.

  • Will you change careers or relocate for a job?
  • Will you get married and start a family?
  • Will you suddenly come into some money, from an inheritance or a settlement?

The way you answer these and similar questions can help you determine if an adjustable-rate mortgage is appropriate and, if so, at what term.

If you plan to start a business, for instance, a 5/1 ARM might not be best. Your income could be unpredictable for a while, making it hard to handle a bigger mortgage payment if your rate increases after five years. In this case, a 10/1 ARM or fixed-rate mortgage might be better.

But if you just got married and plan to wait a few years before having children, a 5/1 ARM might be a good idea. You could take advantage of a low rate and payments for the first few years, then sell and upgrade to a bigger home before the introductory rate expires and your family expands.

» MORE: See the best 5/1 and 10/1 ARM lenders

Other 5/1 ARM vs. 10/1 ARM considerations

While the longevity of the introductory rate may be the biggest difference between 5/1 and 10/1 ARMs, it’s not the only thing to factor into your decision.

Other conditions that could affect your choice include:

  • Benchmark index: The baseline interest rate that helps determine your ARM rate.
  • Interest-rate caps: The limits on how much your rate can increase after the fixed period, each year and possibly over the full term of the loan.

Be sure you fully understand these conditions, as well as the rate adjustment period, before deciding between a 5/1 ARM and 10/1 ARM.

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