"Should I be looking at an ARM?"
I'm hearing that question more lately, and I'm not the only one. The Mortgage Bankers Association said the share of applications for adjustable-rate loans rose to 10.5% in the week ending October 9, the highest since October 2025.
It makes sense. As of Friday, October 16, Mortgage News Daily's index had the 7/6 SOFR ARM at 6.81% for a well-qualified buyer, compared to 7.37% for the conventional 30-year fixed. That's a real gap, and people notice it.
But a lower starting rate is only half the story. Here's how I walk people through it.
What "7/6" actually means
The first number is how long your rate stays fixed. On a 7/6 ARM, that's seven years.
The second number is how often it can change after that. The "6" means every six months.
So for the first seven years, your rate and principal-and-interest payment don't move. Starting in year eight, the rate can adjust twice a year, up or down, for the rest of the loan.
How the new rate gets set
When the fixed period ends, your rate is figured with a simple formula: an index plus a margin.
The index moves with the market. On a "SOFR" ARM, it's based on the Secured Overnight Financing Rate, which the Federal Reserve Bank of New York publishes daily. Fannie Mae uses a 30-day average of it.
The margin is a set number of percentage points added on top. It's written into your loan and doesn't change after closing.
Add them together and you get what's called the fully indexed rate. The CFPB points out that margins can vary from lender to lender, so it's worth asking about the margin, not just the starting rate. Since I shop around 300 lenders, I look at both.
The caps are your guardrails
Caps limit how far your rate can move. On a standard Fannie Mae 7-year SOFR ARM, they're set at 5/1/5:
- 5% is the most the rate can rise at the first adjustment.
- 1% is the most it can move, up or down, at each adjustment after that.
- 5% is the most it can ever rise above your starting rate over the life of the loan.
There's also a floor. Under Fannie Mae's rules, the rate can't drop below the margin, no matter what the index does.
Caps can differ by program and lender, so I always show you the exact ones on your loan before you decide. The key is to look at the worst case, not just the best case, and make sure you'd be okay with it.
Who a 7/6 ARM tends to fit
Here's where I see it make sense:
- You're pretty confident you'll move or sell within about seven years. Maybe it's a starter home, or you expect a job change.
- You've got a plan for year eight that doesn't depend on rates falling. Selling, paying the balance down, or simply being comfortable if the payment goes up.
- You've stress-tested the payment. You know roughly what it could look like if the rate adjusts toward its caps, and your budget can handle it.
And here's where I'd slow down:
- This is your forever home. If you plan to stay 15 or 20 years, a fixed rate gives you certainty an ARM can't.
- You're only buying because the ARM makes the payment fit. If the house only works at the ARM's starting rate, that's a sign to rethink the price range, not just the loan.
- You're counting on a refinance before year eight. A refinance is an option, not a promise. It depends on rates, your home's value, your credit and your income down the road, and it has its own costs.
One thing that surprises people
On a conventional ARM with a fixed period longer than five years, like a 7/6, Fannie Mae generally lets lenders qualify you at the note rate. On shorter ARMs, you qualify at a higher rate to account for payment shock.
That's helpful, but it also means the approval itself isn't testing what happens in year eight. That part is on us. I'd rather we run those numbers together now than have you find out later.
The side-by-side is still the answer
When an ARM is on the table, I'll put it next to a 30-year fixed for the same house. You'll see the starting rate, the APR, the payment, the caps, the margin, and what the payment could look like after the fixed period ends.
Sometimes the ARM wins for your situation. Sometimes the fixed rate is worth the extra peace of mind. Either way, you'll be choosing with the full picture.
FAQ
Can the rate on a 7/6 ARM go up during the first seven years?
No. The rate is fixed for the first seven years. Adjustments start after that.
Can my rate go down after the fixed period?
Yes. Each adjustment can move up or down, within the caps, depending on where the index is. It can't drop below the margin.
What's SOFR?
The Secured Overnight Financing Rate is a broad measure of what it costs to borrow cash overnight, backed by U.S. Treasury securities. It's published daily by the Federal Reserve Bank of New York, and it replaced LIBOR as the index on most new ARMs.
Is an ARM harder to qualify for?
Not necessarily. For conventional ARMs with fixed periods longer than five years, Fannie Mae generally qualifies you at the note rate. Shorter ARMs use a higher qualifying rate. Credit and down payment requirements can differ from fixed-rate loans, so I'll check what applies to you.
Are there FHA and VA ARMs?
Yes, both programs offer adjustable-rate options, and their caps and rules are different from conventional ARMs. If you're using FHA or VA, I'll walk you through those terms specifically.
If you're buying in Phoenix or anywhere in Arizona and want to see an ARM and a fixed rate side by side on your own numbers, start at themcdteam.com. Apply if you're ready, or schedule a call and we'll walk through it together.
Rates mentioned are Mortgage News Daily national index averages of advertised rates as of Friday, October 16, 2026, and the MBA weekly survey for the week ending October 9, 2026, shared as market commentary only. They're not a rate quote or an offer of credit, and an APR can't be calculated for an index average. For a 7/6 adjustable-rate mortgage, the rate is fixed for the first seven years and may increase after consummation, adjusting every six months after that within the loan's caps. Cap, index and qualifying details describe general Fannie Mae guidelines and can vary by program and lender. Your actual rate, APR, payment and terms depend on your credit, loan amount, down payment, property and program at the time you lock. All loans are subject to credit approval and program guidelines.
Michael McDermott, NMLS 184065 | NEXA Lending, NMLS 1660690 | Equal Housing Opportunity