5/1 ARM Financing Advantages

October 1, 2025  |  Finance Info, Homebuilding, Market Info

When you’re shopping for a new home, there are a variety of financing programs that may be a good fit for you. It is good to work with a reputable lender – someone you can speak with and ask questions. For example, what is a 5/1 ARM? A 5/1 ARM (Adjustable-Rate Mortgage) means the interest rate is fixed for the first 5 years, then adjusts once per year thereafter based on a benchmark index (like SOFR or the 1-year Treasury) plus a margin.

Here are the advantages:

🔹 1. Lower Initial Interest Rate

One of the biggest draws of a 5/1 ARM is that the initial rate is usually significantly lower than the going rate on a 30-year fixed mortgage. This means lower monthly payments for the first 5 years, which frees up cash flow.

🔹 2. Short-Term Savings

If you plan to sell, refinance, or relocate within 5–7 years, you can benefit from the lower rate and never face a higher mortgage payments when it adjusts. This is a great option for younger buyers who plan to “move up” to a larger home as their family grows. Likewise, a 5/1 ARM can be a great tool for someone making a short term move for their career.

🔹 3. Lower Cost of Borrowing Early

By paying less interest in those first 5 years, you can build savings faster and pay down other debt. Similarly, you can invest the difference elsewhere.

🔹 4. Rate Caps Provide Some Protection

ARMs come with periodic and lifetime caps on how much the rate can rise. This prevents unlimited jumps and surprises.

🔹 5. Easier Qualification in Some Cases

Since the starting rate is lower, your debt-to-income ratio looks better, which can help qualify for a larger loan amount.

It’s good to understand all the financing options available when shopping for a new home. Be sure to ask about financing with our lending partner, Coastal Loans. Visit Holiday Builders for floorplans, pricing and locations. Holiday Builders builds new single-family homes throughout Florida. We’re always developing new communities so check back often. Looking for a new home in Florida?  Be sure to check our inventory of move-in-ready homes.  Employee owned, building in Florida since 1983.

This post was written by Tina Suiter.