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As a real estate investor, you’re always looking for a way to get ahead of the competition. Whatever edge you find can be the difference between purchasing a property and growing your portfolio, or losing out on a deal to another investor. One solution to this problem is acquiring the necessary funds to purchase or refinance a property through a unique rental property financing term option: ARMs.

As the name implies, an adjustable-rate mortgage is a loan with an interest rate that fluctuates. Rate changes aren’t unannounced or sporadic. You’ll be agreeing to some very specific terms regarding when and how your rate can change. An adjustable-rate mortgage (ARM) is far more complicated than a fixed-rate mortgage. Complicated isn’t always bad though. An ARM offers the potential to save money over the life of a loan. Let’s go over what to expect and what you need to know about ARMs.

An adjustable-rate mortgage typically starts off with a very low initial interest rate. This makes ARMs look very attractive when doing rate comparisons against available fixed-rate mortgages. This is because it’s easier for a lender to agree to a term for 5 years rather than for 30. Of course, that low rate isn’t set in stone. The rate rises and falls based on the index that it is connected to.

What period of time does an ARM cover? The 5/1 ARM is the most popular adjustable-rate option. The terms of the 5/1 ARM lock in your signing rate for five years. Your interest rate can change once per year after that. It’s also possible to find 3/1, 7/1 and 10/1 ARMs at Apex Capital Solutions. All of them follow the same general terms as the 5/1 ARM.


§  Lower rates help you build equity faster

The obvious advantage of an adjustable-rate mortgage is that they carry lower interest rates during the fixed period of the loan. Therefore, an ARM may be suitable for investors who want more cash flow flexibility in the near term.

§  You Can Qualify for a Bigger Loan

Since the interest rate at the initial fixed period is usually lower than that of a fixed-rate mortgage, you’ll be able to qualify for a bigger loan. Moreover, you can save more money over the short-term because of smaller monthly payments.

§  Rates can go down too

If interest rates are falling, a real estate investor can enjoy lower monthly payments without the need to refinance.


It’s really impossible to do an apples-to-apples comparison between a fixed-rate and adjustable-rate mortgage unless you have a crystal ball. That’s because you can’t compare a static percentage rate to a floating percentage rate for a long-term projection. However, we can still get a good baseline comparison for what your loan might look like using an imaginary home purchase.

We’ll say that you find a great rental property that requires a $200,000 mortgage after the down payment. We’ll use an imaginary 5/1 ARM against an imaginary fixed-rate mortgage for this example to show you what costs could look like during your five-year intro period. Here’s a look:

30-year fixed-rate mortgage

  Mortgage amount: $200,000

  Interest rate: 4.3%

  Monthly payment: $990

 5/1 ARM

  Mortgage amount: $200,000

  Interest rate: 3.3%

  Monthly payment: $876

Let’s investigate how that five-year (60 months) period looks for each option. You’ll pay a total of $59,400 for your fixed-rate mortgage during those five years. Your 5/1 ARM will cost you $52,560. That means you’ll save $6,840 over five years.

That cost difference can be particularly enticing for landlords and property investors. After all, that nearly $7,000 in savings could represent a down payment for a new rental property. Of course, there is the fear that your interest rate could spike after the five-year introductory period.


We already covered that the most common type of adjustable-rate mortgage is the 5/1 ARM. You may have several options for a fixed rate period presented to you if you meet with a lender. Let’s make sure you know what’s involved! Here’s a glance:

  The 10/1 ARM is fixed for 120 months. Your rate adjusts annually for the remaining loan term.

  The 7/1 ARM is fixed for 84 months. Your rate adjusts annually for the remaining loan term.

  The 5/1 ARM is fixed for 60 months. Your rate adjusts annually for the remaining loan term.

  The 3/1 ARM is fixed for 36 months. Your rate adjusts annually for the remaining loan term. 

Your first number is how many years your rate will be fixed. The second number shows how many times per year your rate can increase. You will have some warning before a rate switch. Your rate adjustment takes place on the anniversary of your mortgage each year. It’s also important to know some terms associated with ARM loans that will influence the terms of your loan. 


This is the economic indicator used to calculate your ARM’s interest rate.

Initial cap

This is the number dictating how much your interest rate can change once your fixed period is over.

Lifetime cap

This is the limit your rate can be raised over the full lifetime of your loan. 

Periodic cap

This is the maximum your interest rate can increase between adjustment periods.

As you can see, ARMs may not be as “wild” as they appear at first glance. Your loan will have caps in place that prevent total unpredictability. Of course, the caps attached to your specific loan could determine whether or not you’re making a safe bet. 


We mentioned briefly that ARMs comes as fully amortizing or interest-only loans. Most ARM products are fully amortizing. An interest-only ARM is a product that only requires you to cover monthly interest payments. What’s the catch?

You’re making very low payments because you’re not covering any principal. However, those chickens will come home to roost at the end of your mortgage term in the form of a balloon payment. A saving grace of an interest-only ARM is that it does typically have a maximum interest rate that cannot exceed 12 percent. This can be a good option depending on how you play things. Yes, extremely low payments do give you an opportunity to save or invest money. You may be able to cover your balloon payment easily because you’ve been able to grow the money that would have otherwise been sucked up by principal payments. However, this is not an option that should be used without some very strategic planning.


ARMs offers flexible financing to help you do whatever you need to do as an investor, whether that’s purchase a new property, or refinance or cash-out an existing property.

Whether you’re a new investor or continuing to grow your business, competitive interest rates and the level of flexibility offered with ARMs can give you a huge advantage over other investors in your market.

At Apex Capital Solutions we make it easy to finance all of your fix-and-flip projectsrental properties, and multifamily investments. As a national lender, we lend across the country in 41 states including the District of Columbia.  Our ARM rental programs are designed to benefit you as an investor and allows you to be set up for success as you grow your rental property portfolio.  If you would like to learn more about our ARM options and the benefits that it provides you as an investor, contact us.