FHA Adjustable-Rate Mortgages: A Simple Guide

• Author: Margaret Hills
• Posted: 2026-04-08

An FHA adjustable-rate mortgage (ARM) is a home loan backed by the Federal Housing Administration. Unlike a regular fixed-rate mortgage where your interest rate stays the same forever, an FHA ARM has an interest rate that can change over time.

Here's how it works: Your interest rate stays fixed for a set period (anywhere from 1 to 10 years). After that initial period ends, your rate can go up or down based on market conditions.
 

Why Do People Choose FHA ARMs?

FHA ARMs became more popular in 2022 when interest rates went up. That's because ARMs often start with lower interest rates than fixed-rate loans. This lower starting rate can help buyers:
 

• Qualify for a home they might not otherwise afford
• Save money during the initial fixed-rate period
• Have more flexibility with their finances

 

Types of FHA ARM Loans

There are five different FHA ARM options to choose from:
 

• 1-Year ARM
  • Fixed rate for the first year
  • After that, rates can go up by 1% each year
  • Rates can never increase more than 5% total over the life of the loan
• 3-Year ARM
  • Fixed rate for the first three years
  • After that, rates can go up by 1% each year
  • Rates can never increase more than 5% total over the life of the loan
• 5-Year ARM
  • Fixed rate for the first five years
  • After that, rates can go up by either:
    • 1% each year (with a 5% lifetime cap), or
  • 2% each year (with a 6% lifetime cap)
• 7-Year ARM
  • Fixed rate for the first seven years
  • After that, rates can go up by 2% each year
  • Rates can never increase more than 6% total over the life of the loan
• 10-Year ARM
  • Fixed rate for the first ten years
  • After that, rates can go up by 2% each year
  • Rates can never increase more than 6% total over the life of the loan

 

Who Can Get an FHA ARM?

To qualify for an FHA ARM, you must meet these requirements:
 

• The home must be your primary residence (the place where you actually live)
• Credit score of 580 or higher with a 3.5% down payment, OR
• Credit score between 500-579 with a 10% down payment

Advantages of FHA ARMs
 

• Lower starting rates: The initial interest rate is usually lower than fixed-rate loans
• Long fixed-rate options: You can lock in your rate for up to 10 years
• Easier to qualify: People with lower credit scores can still buy a home

Disadvantages of FHA ARMs
 

• Rate increases: Your payments could go up significantly after the fixed-rate period ends
• Loan limits: FHA loans have borrowing limits that may not cover expensive homes
• Mortgage insurance required: You'll need to pay:
  • An upfront fee of 1.75% of your loan amount
  • An annual fee between 0.15% and 0.75%

 

Is an FHA ARM Right for You?

An FHA ARM might be a good choice if you:
 

1. Plan to refinance: You can switch to a different loan before your rate changes
2. Plan to sell soon: You can enjoy low payments and sell before rates go up
3. Plan to pay off your mortgage early: You won't be affected by rate increases
4. Can afford higher payments later: If you expect to earn more money in the future, you may be able to handle potential rate increases
5. Have a lower credit score: FHA ARMs have more flexible requirements than conventional loans

 

The Bottom Line

An FHA ARM can be a smart choice for the right buyer, but it's important to understand the risks. While you'll enjoy lower payments at first, your costs could increase later.

Make sure you're comfortable with the possibility of higher payments before choosing this type of loan.

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