5/1 vs. 5/6 ARM Loans: Key Differences

Author: Mike Bloch

Published on: 3/14/2025|8 min read

Fact Checked

Author: Mike Bloch|Published on: 3/14/2025|8 min read

Fact Checked

Both 5/1 and 5/6 ARMs have lower initial rates than traditional 30-year fixed mortgages, but the main difference is how often your rate changes after the first five years. With 5/1 ARMs, it changes every year, and with 5/6 ARMs, it changes every six months. This can have a big effect on your long-term payment stability and total borrowing costs.

Key Takeaways

5/1 ARMs change once a year after the fixed period, while 5/6 ARMs change twice a year (every six months). The switch to 5/6 products happened in 2023 when lenders switched from the LIBOR index to the SOFR index after scandals involving rate manipulation.
Rate caps keep your payments from going up too much. They are shown as three numbers, like 5/2/5, which stand for the initial adjustment cap, the periodic adjustment cap, and the lifetime cap that limits total rate increases over the life of your loan.
The 5/6 ARM may have slightly lower initial rates (5.75% vs. 6% in the example), but it also has trade-offs, such as more frequent adjustments and possibly higher lifetime caps (6% vs. 5%), which could mean higher long-term costs.
ARMs are best for people who want to own a home for five years or less. They let you take advantage of lower initial rates and sell before the adjustable period starts, which could save you thousands in interest.
Strategic refinancing can help you save the most money on your ARM by using the lower introductory rate for five years and then switching to a 30-year fixed mortgage if rates go down. This could lower your total borrowing costs compared to starting with a fixed-rate loan.

With home prices and interest rates remaining high, more home buyers are looking for ways to lower their monthly mortgage payments. That's where adjustable-rate mortgages (ARMs) come in.

A 5/1 ARM and a 5/6 ARM both start with a fixed interest rate for the first five years, followed by periodic adjustments. But what happens after that initial period? And which option could save you more in the long run?

Understanding the differences between these two popular ARMs can help you decide which one fits your financial goals. If you're planning to move within a few years or want to maximize affordability now while keeping future options open, choosing the right ARM can give you more flexibility and potential savings.

Let's explore how a 5/1 ARM compares to a 5/6 ARM — so you can make the best choice for your mortgage.

Exploring your ARM loan choices

Though the 5/6 is one of the most common alternatives to the 5/1, it isn't the only other ARM to consider. Lenders may offer other adjustable-rate loans, including:

5/6: Five-year fixed period; rate adjusts every six months thereafter.
7/6: Seven-year fixed period; rate adjusts every six months thereafter.
10/6: Ten-year fixed period; rate adjusts every six months thereafter.
5/1, 7/1, 10/1: Five, seven, or ten-year fixed period; rate adjusts every year thereafter.

Beyond these traditional ARMs, more specialized adjustable-rate loans may be available (depending on the lender). These options offer added flexibility but come with unique considerations:

Interest-only ARM: Pay only the loan interest for a set period (usually up to 10 years) before transitioning to payments that include both principal and interest.
Payment-option ARM: Choose from multiple monthly payment options, including amortizing payments (scheduled payments that go toward both the interest and the principal), interest-only payments, or minimum payments.

The initial fixed interest rate with an adjustable-rate mortgage is typically lower than what is available with a conventional 30-year fixed-rate mortgage. However, once the rate begins to adjust, it may either increase or decrease, posing a risk of higher monthly mortgage payments over the long term.

The rate adjustment is based on a financial index identified in your mortgage contract by the lender. Commonly used indexes include the Secured Overnight Financing Rate (SOFR) and the Constant Maturity Treasury (CMT).

Your interest rate adjustment is based on the index rate plus a margin added by your lender. While the index rate fluctuates, the margin --- which is specified in your mortgage contract — typically remains constant for the loan's duration.

AmeriSave offers adjustable-rate mortgages in 5/6, 7/6, and 10/6 terms, giving you flexible options to fit your needs.

What is a 5/1 ARM?

Let's zoom in on 5/1 ARMs. As we touched on earlier, this type of mortgage features a fixed interest rate for the first five years, followed by a variable rate that adjusts once per year for the remainder of the loan. It's called "5/1" because the "5" represents the introductory period with the fixed interest rate, while the "1" tells you how often the rate is adjusted.

A 5/1 ARM typically starts with a lower interest rate than a 30-year fixed mortgage, helping you save if you plan to sell or refinance within the first five years. It's also worth considering if you expect interest rates to drop in the future, potentially lowering your payments even after the fixed period ends.

What is a 5/6 ARM?

A 5/6 ARM loan is a type of adjustable-rate mortgage that maintains a fixed interest rate for the first five years, after which the rate adjusts every six months for the remainder of the life of the loan. Like a 5/1 ARM, the 5/6 ARM may offer lower monthly payments during the first few years of the loan.

The shift from 5/1 to 5/6 ARM loans

Conventional U.S. ARM loans, including 5/1 ARMs, historically relied on the London Interbank Offered Rate (LIBOR) as their index for setting interest rates. However, due to questionable practices manipulating index rates, the LIBOR index was phased out in 2023. Instead, lenders have adopted for more accurate indexes, like SOFR, for their conventional ARM loans. With SOFR's six-month average, these loans now generally have a six-month adjustment period, leading lenders to offer 5/6 ARM vs. 5/1 ARMs.

It's important to note that government-backed ARM loans, such as those offered by the Federal Housing Administration (FHA) and the Department of Veterans Affairs (VA), still utilize the CMT Index, which allows for a one-year adjustment period.

Managing your ARM rate adjustments: What to expect

Whether it's a 5/1 ARM or 5/6 ARM — or any other type of ARM — your adjustable interest rate may be subject to caps. These caps restrict the amount your interest rate can increase.

Initial rate cap: Limits the percentage point increase to the interest rate at the first adjustment.
Periodic rate cap: Sets the maximum percentage point increase to the interest rate for all subsequent adjustments.
Lifetime rate cap: Establishes the total percentage points the lender can add to the interest rate over the loan's entire term.

Interest rate caps are expressed as three numbers separated by slashes, such as 5/2/5. The first number represents the initial cap, the second the periodic cap, and the third the lifetime cap.

5/1 vs. 5/6: Which ARM loan fits your needs?

Initial fixed-rate period: Unlike traditional fixed-rate mortgages, both the 5/1 ARM and 5/6 ARM offer an initial fixed-rate period followed by adjustable rates. These introductory ARM rates tend to be a bit lower than the interest rate on a fixed-rate mortgage, which can help you save during the early years of the loan.

Rate stability: During the initial fixed-rate period, typically five years, the interest rate remains constant.
Adjustable rates: Following this period, the rate adjusts based on market conditions and predetermined margins. With a 5/1 ARM, you'll have one rate adjustment per year. With a 5/6 ARM, your rate will adjust twice each year.
Considerations for borrowers: Borrowers should be aware of potential rate fluctuations and plan accordingly. Seeking guidance from a mortgage professional can provide clarity on the implications of both 5/1 and 5/6 adjustable-rate mortgages.
5/1 vs. 5/6: An example: Let's review an example to better illustrate how a 5/1 ARM works compared with a 5/6 ARM.

You sign a purchase contract for a $400,000 home and have enough saved for an $80,000 (20%) down payment.

Your lender offers two mortgage options:

A 5/1 ARM at a 6% introductory interest rate and 5/2/5 interest rate capping for the adjustment period.
A 5/6 ARM at a 5.75% introductory interest rate and 5/2/6 interest rate capping for the adjustment period.

While the 5/1 ARM has a slightly higher introductory rate, it has a lower lifetime cap and only one adjustment period per year. The 5/6 ARM, on the other hand, offers a slightly lower initial interest rate, but after the first five years, adjusts twice per year instead of once. In addition, the 5/6 ARM could potentially increase by as much as 6% versus the 5% lifetime cap on the 5/1 ARM.

Comparing ARM payment scenarios

To help illustrate how different loan options compare, the table below breaks down key details of our 5/1 and 5/6 ARMs from the example above, along with a 30-year fixed mortgage for reference:

Note: Example scenarios are based on 30-year loan terms and do not reflect current market rates.

In this example, the 5/6 ARM saves you $52 per month, or $3,120 over the first five years (60 months) of the mortgage. Though the initial savings with a 5/6 ARM might sound nice, remember that they may come with higher future costs since the rate adjusts twice per year and its lifetime interest rate cap is higher.

Smart strategies for ARM refinancing

If you don't plan to stay in your home for more than five years, your initial fixed-rate period can help you save on interest and then you could sell your home before the adjustable-rate period kicks in. But if you expect to stay for the long-term, it's important to consider what happens once the adjustable-rate period begins.

To avoid the unpredictability of fluctuating interest rates and monthly mortgage payments, many borrowers who plan to stay in their homes over the long term opt to refinance from an ARM to a fixed-rate mortgage.

One common refinancing strategy is to wait five years until the introductory period on your ARM ends, then apply for a fixed-rate mortgage. This way, you never have to deal with the adjustable rates.

Let's continue with our example:

At the five-year mark, let's say the interest rate on a 30-year fixed-rate mortgage declines to 4.75%. With approximately $100,000 of equity and a home appraised at $425,000, you apply to refinance your ARM to a 30-year fixed-rate mortgage.

When to refinance your ARM?

In this scenario, the ARM saves money in the initial five years of the mortgage. Moreover, you pay significantly less than if you had chosen the fixed-rate loan initially. Additionally, the total cost of paying off both mortgages is lower than the total cost of the original 30-year fixed-rate loan.

Savings through refinancing an adjustable-rate mortgage requires some planning. A mortgage professional can assist you with determining the potential return on investment of your refinance so that you make an informed decision.

5/6 ARM vs. 5/1 ARM: Moving forward with your loan choice

Choosing between a 5/6 ARM, 5/1 ARM, and 30-year fixed-rate mortgage depends on how long you plan to own the home and your risk tolerance.

If you anticipate relocating within a few years or believe interest rates will decline, an adjustable-rate mortgage like the 5/6 ARM may yield savings by offering a lower mortgage interest rate in the early years of the loan.

Conversely, if you plan to live in the house over the long term, prefer stable interest rates and predictable payments, or just don't want to think about refinancing, a 30-year fixed-rate mortgage might be a better fit.

At AmeriSave, we offer a range of adjustable-rate and fixed-rate mortgage options to fit your financial goals. Whether you're looking for the flexibility of an ARM or the stability of a 30-year fixed loan, our streamlined process makes it easy to find the right loan for you. Get started today.

Overview
Key Takeaways
Exploring your ARM loan choices
What is a 5/1 ARM?
What is a 5/6 ARM?
The shift from 5/1 to 5/6 ARM loans
Managing your ARM rate adjustments: What to expect
5/1 vs. 5/6: Which ARM loan fits your needs?
Comparing ARM payment scenarios
Smart strategies for ARM refinancing
When to refinance your ARM?
5/6 ARM vs. 5/1 ARM: Moving forward with your loan choice

With home prices and interest rates remaining high, more home buyers are looking for ways to lower their monthly mortgage payments. That's where adjustable-rate mortgages (ARMs) come in. A 5/1 ARM and a 5/6 ARM both start with a fixed interest rate for the first five years, followed by periodic adjustments. But what happens after that initial period? And which option could save you more in the long run? Understanding the differences between these two popular ARMs can help you decide which one fits your financial goals. If you're planning to move within a few years or want to maximize affordability now while keeping future options open, choosing the right ARM can give you more flexibility and potential savings. Let's explore how a 5/1 ARM compares to a 5/6 ARM — so you can make the best choice for your mortgage. Exploring your ARM loan choices Though the 5/6 is one of the most common alternatives to the 5/1, it isn't the only other ARM to consider. Lenders may offer other adjustable-rate loans, including: 5/6: Five-year fixed period; rate adjusts every six months thereafter. 7/6: Seven-year fixed period; rate adjusts every six months thereafter. 10/6: Ten-year fixed period; rate adjusts every six months thereafter. 5/1, 7/1, 10/1: Five, seven, or ten-year fixed period; rate adjusts every year thereafter. Beyond these traditional ARMs, more specialized adjustable-rate loans may be available (depending on the lender). These options offer added flexibility but come with unique considerations: Interest-only ARM: Pay only the loan interest for a set period (usually up to 10 years) before transitioning to payments that include both principal and interest. Payment-option ARM: Choose from multiple monthly payment options, including amortizing payments (scheduled payments that go toward both the interest and the principal), interest-only payments, or minimum payments. The initial fixed interest rate with an adjustable-rate mortgage is typically lower than what is available with a conventional 30-year fixed-rate mortgage. However, once the rate begins to adjust, it may either increase or decrease, posing a risk of higher monthly mortgage payments over the long term. The rate adjustment is based on a financial index identified in your mortgage contract by the lender. Commonly used indexes include the Secured Overnight Financing Rate (SOFR) and the Constant Maturity Treasury (CMT). Your interest rate adjustment is based on the index rate plus a margin added by your lender. While the index rate fluctuates, the margin --- which is specified in your mortgage contract — typically remains constant for the loan's duration. AmeriSave offers adjustable-rate mortgages in 5/6, 7/6, and 10/6 terms, giving you flexible options to fit your needs. What is a 5/1 ARM? Let's zoom in on 5/1 ARMs. As we touched on earlier, this type of mortgage features a fixed interest rate for the first five years, followed by a variable rate that adjusts once per year for the remainder of the loan. It's called "5/1" because the "5" represents the introductory period with the fixed interest rate, while the "1" tells you how often the rate is adjusted. A 5/1 ARM typically starts with a lower interest rate than a 30-year fixed mortgage, helping you save if you plan to sell or refinance within the first five years. It's also worth considering if you expect interest rates to drop in the future, potentially lowering your payments even after the fixed period ends. What is a 5/6 ARM? A 5/6 ARM loan is a type of adjustable-rate mortgage that maintains a fixed interest rate for the first five years, after which the rate adjusts every six months for the remainder of the life of the loan. Like a 5/1 ARM, the 5/6 ARM may offer lower monthly payments during the first few years of the loan. The shift from 5/1 to 5/6 ARM loans Conventional U.S. ARM loans, including 5/1 ARMs, historically relied on the London Interbank Offered Rate (LIBOR) as their index for setting interest rates. However, due to questionable practices manipulating index rates, the LIBOR index was phased out in 2023. Instead, lenders have adopted for more accurate indexes, like SOFR, for their conventional ARM loans. With SOFR's six-month average, these loans now generally have a six-month adjustment period, leading lenders to offer 5/6 ARM vs. 5/1 ARMs. It's important to note that government-backed ARM loans, such as those offered by the Federal Housing Administration (FHA) and the Department of Veterans Affairs (VA), still utilize the CMT Index, which allows for a one-year adjustment period. Managing your ARM rate adjustments: What to expect Whether it's a 5/1 ARM or 5/6 ARM — or any other type of ARM — your adjustable interest rate may be subject to caps. These caps restrict the amount your interest rate can increase. Initial rate cap: Limits the percentage point increase to the interest rate at the first adjustment. Periodic rate cap: Sets the maximum percentage point increase to the interest rate for all subsequent adjustments. Lifetime rate cap: Establishes the total percentage points the lender can add to the interest rate over the loan's entire term. Interest rate caps are expressed as three numbers separated by slashes, such as 5/2/5. The first number represents the initial cap, the second the periodic cap, and the third the lifetime cap. 5/1 vs. 5/6: Which ARM loan fits your needs? Initial fixed-rate period: Unlike traditional fixed-rate mortgages, both the 5/1 ARM and 5/6 ARM offer an initial fixed-rate period followed by adjustable rates. These introductory ARM rates tend to be a bit lower than the interest rate on a fixed-rate mortgage, which can help you save during the early years of the loan. Rate stability: During the initial fixed-rate period, typically five years, the interest rate remains constant. Adjustable rates: Following this period, the rate adjusts based on market conditions and predetermined margins. With a 5/1 ARM, you'll have one rate adjustment per year. With a 5/6 ARM, your rate will adjust twice each year. Considerations for borrowers: Borrowers should be aware of potential rate fluctuations and plan accordingly. Seeking guidance from a mortgage professional can provide clarity on the implications of both 5/1 and 5/6 adjustable-rate mortgages. 5/1 vs. 5/6: An example: Let's review an example to better illustrate how a 5/1 ARM works compared with a 5/6 ARM. You sign a purchase contract for a $400,000 home and have enough saved for an $80,000 (20%) down payment. Your lender offers two mortgage options: A 5/1 ARM at a 6% introductory interest rate and 5/2/5 interest rate capping for the adjustment period. A 5/6 ARM at a 5.75% introductory interest rate and 5/2/6 interest rate capping for the adjustment period. While the 5/1 ARM has a slightly higher introductory rate, it has a lower lifetime cap and only one adjustment period per year. The 5/6 ARM, on the other hand, offers a slightly lower initial interest rate, but after the first five years, adjusts twice per year instead of once. In addition, the 5/6 ARM could potentially increase by as much as 6% versus the 5% lifetime cap on the 5/1 ARM. Comparing ARM payment scenarios To help illustrate how different loan options compare, the table below breaks down key details of our 5/1 and 5/6 ARMs from the example above, along with a 30-year fixed mortgage for reference: Note: Example scenarios are based on 30-year loan terms and do not reflect current market rates. In this example, the 5/6 ARM saves you $52 per month, or $3,120 over the first five years (60 months) of the mortgage. Though the initial savings with a 5/6 ARM might sound nice, remember that they may come with higher future costs since the rate adjusts twice per year and its lifetime interest rate cap is higher. Smart strategies for ARM refinancing If you don't plan to stay in your home for more than five years, your initial fixed-rate period can help you save on interest and then you could sell your home before the adjustable-rate period kicks in. But if you expect to stay for the long-term, it's important to consider what happens once the adjustable-rate period begins. To avoid the unpredictability of fluctuating interest rates and monthly mortgage payments, many borrowers who plan to stay in their homes over the long term opt to refinance from an ARM to a fixed-rate mortgage. One common refinancing strategy is to wait five years until the introductory period on your ARM ends, then apply for a fixed-rate mortgage. This way, you never have to deal with the adjustable rates. Let's continue with our example: At the five-year mark, let's say the interest rate on a 30-year fixed-rate mortgage declines to 4.75%. With approximately $100,000 of equity and a home appraised at $425,000, you apply to refinance your ARM to a 30-year fixed-rate mortgage. When to refinance your ARM? In this scenario, the ARM saves money in the initial five years of the mortgage. Moreover, you pay significantly less than if you had chosen the fixed-rate loan initially. Additionally, the total cost of paying off both mortgages is lower than the total cost of the original 30-year fixed-rate loan. Savings through refinancing an adjustable-rate mortgage requires some planning. A mortgage professional can assist you with determining the potential return on investment of your refinance so that you make an informed decision. 5/6 ARM vs. 5/1 ARM: Moving forward with your loan choice Choosing between a 5/6 ARM, 5/1 ARM, and 30-year fixed-rate mortgage depends on how long you plan to own the home and your risk tolerance. If you anticipate relocating within a few years or believe interest rates will decline, an adjustable-rate mortgage like the 5/6 ARM may yield savings by offering a lower mortgage interest rate in the early years of the loan. Conversely, if you plan to live in the house over the long term, prefer stable interest rates and predictable payments, or just don't want to think about refinancing, a 30-year fixed-rate mortgage might be a better fit. At AmeriSave, we offer a range of adjustable-rate and fixed-rate mortgage options to fit your financial goals. Whether you're looking for the flexibility of an ARM or the stability of a 30-year fixed loan, our streamlined process makes it easy to find the right loan for you. Get started today.