What Is a 5/1 Mortgage Loan?

Definition and Examples of a 5/1 Mortgage Loan

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A 5/1 mortgage loan, also referred to as a 5/1 adjustable rate mortgage (ARM), combines aspects of a variable-rate mortgage and a fixed-rate mortgage. The “5” indicates that the loan’s interest rate will remain fixed for the first five years of the loan term. The rate will adjust “1” time per year at the end of those five years until the loan has been paid off.

What Is a 5/1 Mortgage Loan?

A 5/1 mortgage loan provides the assurance that your interest rate won't change for the first 60 months of your loan. This can be a very good thing if you lock in a low interest rate just before rates go up. Beginning in the sixth year, however, the rate will adjust annually.

How much the rate will adjust depends on the mortgage index to which the loan is tied. It might rise, or it might go down. Mortgage rate indexes can fluctuate often depending on the economy, market conditions, and other factors. There’s no way to predict how a 5/1 loan’s rate will change, or by how much, so there's some level of uncertainty after that five-year period expires.

How a 5/1 Mortgage Loan Works

A 5/1 mortgage loan is generally a good choice in two scenarios. You’ll save big by getting a 5/1 loan rather than a 30-year fixed mortgage if you don’t plan to stay in the home very long. If you're fairly sure that a career change or a move is in the cards before your five-year fixed period is up, for example, this might be the right option for you.


The initial interest rate on these 5/1 mortgage loans is typically pretty favorable.

You might also want to consider a 5/1 ARM if you know that you can comfortably afford a little unpredictability when the five-year term expires. You can enjoy a relatively low interest rate for the first five years. If your income is sufficient to cover ebbs and flows in your monthly payment after this time—or to allow you to pay the fees and costs of refinancing—a 5/1 ARM could be a good choice.


These hybrid loans generally aren’t a good move if you’re tight on cash and need to rely on having a consistent, reliable payment. You also likely shouldn't get one if you plan to put down serious roots and remain in your home for a long stretch of years.

Some 5/1 ARMs do come with rate caps, so your rate can never increase beyond a certain threshold. These caps help protect you from sky-high payment jumps when your five-year fixed-rate period expires. Otherwise, your monthly interest payments could double or even triple when the interest rate becomes variable.

Types of Hybrid Loans

A 5/1 mortgage loan is only one variation of this mortgage concept. There are also 3/1, 7/1, and 10/1 loans available. They all work on the same premise.

The difference lies in that first number. The interest rate on a 3/1 loan will become variable after three years. Likewise, it will become variable after 10 years with a 10/1 ARM.

5/1 Mortgage Loans vs. 30-Year Fixed Loans

The biggest difference between a 5/1 mortgage and a 30-year fixed loan—which many consider to be the “traditional” mortgage product—is that the former can be much more unpredictable.

You'll know exactly how much interest you’ll pay for the life of your mortgage with a 30-year fixed-rate loan, and you'll have the peace of mind that comes from knowing that your monthly payment won’t increase unless your property taxes or home insurance premiums go up. You only have that peace of mind for the five-year fixed period with a 5/1 mortgage loan.

But the biggest advantage of a 5/1 ARM over a 30-year fixed loan is that it comes with a low upfront interest rate, typically much lower than what you’d be offered on a fixed loan. You’ll be making a much smaller monthly payment than you would on a long-term fixed-rate product during the first five years. This can be a big benefit if you’re on a tight budget or otherwise need to keep your housing costs low.

But those savings are limited with adjustable-rate mortgages. You can’t count on them for the long haul. You could end up paying significantly more once those five years are up.

5/1 Arm Mortgage 30-Year Fixed Loan
Your amount of mortgage payment will become unpredictable after five years. Principal and interest payments will remain the same over the life of the loan.
The interest rate will be significantly lower during the first five years. The interest rate will be higher during the first five years.

How To Get a 5/1 Mortgage

Shop around for your 5/1 ARM just as you would for any loan product. Get quotes from several lenders and financial institutions, and compare their interest rates and APRs. Make sure you get the full breakdown of terms.

Consider making use of one of one of the many 5/1 ARM calculators available online to get a realistic idea of what your payments are likely to be and how much they might fluctuate.

Key Takeaways

  • A 5/1 adjustable rate mortgage (ARM) offers a fixed interest rate for the first five years, after which time the interest rate can change annually to reflect market conditions and the economy.
  • The initial interest rate during the first five years can be significantly less than that associated with a fixed rate mortgage.
  • This type of loan can make sense and save you money if you’re not planning to stay in the home for much more than five years.
  • Homeowners who plan to remain in the residence for an extended time will have to live with the uncertainty of not being able to predict their mortgage payments from year to year after the five-year period is up. 
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The Balance uses only high-quality sources, including peer-reviewed studies, to support the facts within our articles. Read our editorial process to learn more about how we fact-check and keep our content accurate, reliable, and trustworthy.
  1. Rocket Mortgage. "5/1 ARM Loan: Everything You Need to Know." Accessed Dec. 7, 2021.

  2. Consumer Financial Protection Bureau. "Understand loan options." Accessed Dec. 7, 2021.

  3. FDIC. "Interest-Only Mortgage Payments and Payment-Option ARMs." Accessed Dec. 7, 2021.

  4. The Federal Reserve Board. "Consumer Handbook on Adjustable-Rate Mortgages." Page 15. Accessed Dec. 7, 2021.

  5. OCCU. "Is a 5/1 adjustable rate mortgage right for you?" Accessed Dec. 7, 2021.

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