This loan looks a little complex, but I'll give you an actual example. This is what an ARM's closing disclosure looks like.

The AIR table can be found on page 5, which I've added at the bottom of this page.

 

This one is called a 5/1 ARM. It is fixed for 5 years, then has the possibility of adjusting once for every 1 year.

There's a limit to how high or low it can adjust.

On the AIR table it shows what the limits are per adjustment. It's capped at 1%.

So years 1-5 are at 5.125%. The highest rate you could pay on the first adjustment would be 6.125%

You'd pay that for one year. Then it could adjust again. The most it could increase to by the next adjustment is 7.125%

And so on until 10.125%

It could also go down, all the way to 1.75%

How is the rate determined?

If you look at the AIR table again, it refers to the 1 Year Treasury Bond + 1.75%

You can find the 1 year by doing a search "1 year treasury"

Today 10/29/2025 the 1 year treasury is at 3.6%

So if this loan were just coming out of it's fixed period, looking to adjust, we would take the 4.13% + 1.75% = 5.35%

This loan's first adjustment would increase to 5.35% (Which is under the 1% adjustment cap rule, so it passes)

Why consider an ARM?

ARMs typically offer lower rates at lower buydown costs.

If you are having trouble qualifying, but have seller credits to buy down the interest rate, consider using an ARM. It will allow you to push your rate lower than the average.

If you have short-term plans for the house, then this could be a good low-rate option.

What to watch out for

After the financial crisis of 2008, the majority of consumers leaned toward the 30 year fixed product. In 2023 and 2024, ARMs made up less than 10% of US home loans.

I don't blame them.

My Grandmother grew up through the Great Depression.

She rarely spent money. We found cans in her food storage with dated labels from the 60s.

Crises change behavior.

A 30 year fixed loan is predictable. ARMs are less-so.

Just know what you could potentially be getting yourself into when signing up for an ARM (and a leg)