What is a 10/6 adjustable-rate mortgage (ARM)?

Quick insights

• A 10/6 ARM (adjustable-rate mortgage) is a type of mortgage loan where the interest rate is fixed for the first 10 years, followed by an adjusted rate every six months based on current market conditions.
• Refinancingrefinance-hl000061 a 10/6 ARM can be a smart option if interest rates are rising or you want predictable payments. It may save money or provide stability, but closing costs, loan terms and your financial health should be taken into account.
• 10/6 ARMs usually offer lower initial interest rates compared to fixed-rate loansec-what-is-arm-exp-apr25 and can help you save money if you sell or refinance before the adjustable period starts. However, after the 10-year fixed period, the rate adjusts every six months, which could lead to higher costs if interest rates rise.

If you're exploring different mortgage options, you may come across terms like “10/6 ARM” and wonder what it means—and whether it’s right for your financial goals. A 10/6 adjustable-rate mortgage (ARM) offers a unique structure that can provide flexibility and potential savings compared to fixed-rate mortgages, especially in certain market conditions.

How does a 10/6 ARM work?

Unlike fixed-rate mortgages, which lock in the same interest rate for the entire loan term, adjustable-rate mortgage loans have rates that adjust periodically after an initial fixed period. In the case of a 10/6 ARM loan, it’s a type of adjustable-rate mortgage that offers a fixed interest rate for 10 years, followed by an adjusted rate every six months for the rest of the loan period.

These types of ARMs can be an appealing option when home prices and interest rates are high because these loan terms typically offer a lower fixed rate initially than a traditional 30-year mortgage.ec-what-is-arm-exp-apr25 In turn, it can be a more affordable solution at first, before the rate adjusts at the 10-year mark. After this period, rates can rise or fall based on market conditions, so it’s important to factor in this possibility.

How does a 10/6 ARM compare to other types of ARM loans?

All ARM loans are similar in that there’s a fixed-rate period and then a scheduled adjustable period. However, there are a variety of loan options, including but not limited to:

• 5/1: Fixed rate for five years, then it adjusts annually.
• 7/1: Fixed rate for seven years, then it adjusts annually.
• 10/1: Fixed rate for ten years, then it adjusts annually.
• 3/1: Fixed rate for three years, then it adjusts annually.
• 5/6: Fixed rate for five years, then it adjusts every six months.
• 7/6: Fixed rate for seven years, then it adjusts every six months.

Each of these is considered a “hybrid ARM loan” or “variable-rate” loan. There’s a risk of having to make higher payments sooner due to the shorter fixed payment period (if the index rises).

What influences ARM rates?

Like fixed rate mortgages, 10/6 ARM rates are primarily influenced by the index and the margin. The index is an interest rate—such as the Secured Overnight Financing Rate (SOFR) or U.S. Treasury yields—that can fluctuate over time based on market conditions. Due to factors like inflation and monetary policies set by the Federal Reserve (The Fed), the index can rise or fall. This fluctuation then influences your ARM rate during scheduled adjustment periods every six months.

On the other hand, the margin is a fixed percentage set by your lender based on aspects like your loan type, credit score, down payment and general financial profile. To determine your ARM rate, the margin and index are added together. That said, other factors can affect how much you pay over time such as rate caps, your loan terms and your financial background. Specifically, rate caps limit how much your rate can increase at each adjustment period and over the life of the loan.

What are the pros and cons of a 10/6 ARM?

Pros of 10/6 ARM loans

• Initial rates You can typically get a lower interest rate for the first 10 years with a 10/6 ARM compared to a traditional 30-year fixed mortgage,ec-what-is-arm-exp-apr25 which can save you money upfront on monthly payments and total interest.
• Helpful in the short-term: Because 10/6 ARM loans typically offer introductory rates, they help with budgeting depending on your plans for the next 10 years.
• Potential rate decrease: Depending on market conditions, you may see a dip in your interest rate and monthly payments once the adjusted schedule period begins. While this may not happen, a traditional mortgage loan may not offer the same opportunity.

Cons of 10/6 ARM loans

• Payments can increase: After 10 years, your payments are subject to market fluctuations. So there’s a possibility your payments can rise significantly, even with rate caps set by your lender.
• Long-term owners may not benefit: Once the fixed rate period ends, you may experience higher interest rates. This depends on a variety of factors. If you’re looking to own the property for more than 10 years, it may be wiser to look into fixed-rate mortgages so you can plan ahead.
• First-time buyers may feel overwhelmed: Fixed-rate mortgages are typically straightforward, with fewer moving parts. Homeowners can account for stable payment amounts throughout the loan period and don’t have to factor in rate caps and a potential index increase because of the market every six months.

Can you refinance a 10/6 ARM?

You can refinance a 10/6 ARM into any loan you qualify for, such as another type of ARM loan or a fixed-rate mortgage. In some cases, you may even secure a similar or better rate. Your lender will evaluate factors such as your credit score, debt-to-income (DTI) ratio, income stability and your home’s current value to verify it’s sufficient to cover the new loan amount. If you’re concerned about rising interest rates once your fixed period ends, refinancing into a fixed-rate mortgage can offer long-term stability with predictable payments.

Are there risks to refinancing a 10/6 ARM?

There are potential risks to refinancing a 10/6 ARM, which can include:

• Paying closing costs: Whenever you take out any type of mortgage, you have to pay closing costs. You can add closing costs to the loan balance or pay upfront. However, rolling them into the loan may delay the financial benefits of refinancing, especially if you don’t plan to stay in the home long-term.
• Dealing with higher interest rates: If the interest rate has risen dramatically since you’ve taken out your loan, it might not make sense to refinance because the new monthly payment could cost you more. Although most ARMs include rate caps that limit how much your rate can increase during each adjustment period and throughout the loan term, you may still have to deal with higher payments down the road.
• Paying a prepayment penalty fee: Depending on your ARM terms, you may have to pay a prepayment penalty fee if you sell or refinance your home within the first three to five years, so it’s important to carefully review stipulations. The penalty fee can be a fixed amount or a percentage of your principal balance.

10/6 adjustable-rate mortgage (ARM) FAQ

Is a 10-year ARM a good idea?

A 10/6 ARM can be a great idea if you have stable or increasing income to account for any market fluctuations. If you can negotiate an initial lower interest rate and think rates will continue to fall over time, this may work for your financial goals more than a fixed-rate mortgage. This arrangement can also be beneficial if you plan to sell or refinance your home in the next decade.

What happens at the end of a 10-year ARM mortgage?

At the end of the 10-year fixed period on a 10/6 ARM, the interest rate begins adjusting every six months based on a benchmark index (like SOFR), plus a margin set by the lender. Your monthly payments may then increase or decrease depending on market conditions, but they’re subject to any rate caps outlined in your loan terms.

What is the difference between a 10-year ARM vs a 30-year fixed mortgage?

A 10-year ARM has a fixed interest rate for the first 10 years of a loan term, then adjusts at a set schedule based on market rates. Rates can fluctuate after the fixed-rate period, so it can be harder to budget. On the other hand, 30-year fixed-rate mortgages lock in your interest rate and monthly payment amount for the entire loan term. While the interest rate and monthly payment amount is higher, this option can be better if you’re looking for long-term stability.

In summary

A 10/6 ARM can be a smart option for borrowers looking for lower initial payments and flexibility. With a fixed rate for the first 10 years and adjustments every six months after that initial period, 10/6 ARM loans may align well with short-term homeownership plans if you’re looking to refinance down the road. Like with any mortgage, it’s important to weigh your financial goals, risk tolerance and timeline.

Talking to a lender can help you determine whether a 10/6 ARM fits into your broader homeownership plans.