Fixed-rate vs. adjustable-rate mortgage (ARM)

A 5/6 ARM, for example, has a fixed rate for five years, then adjusts every six months based on an index plus a margin. Caps limit how much the rate can rise at the first adjustment, at each later adjustment, and over the life of the loan.

ARMs usually start at a lower rate than 30-year fixed loans. They can make sense if you expect to sell or refinance before the fixed period ends — but plan for the worst case the caps allow, not the teaser rate.