What is a 3/6 ARM?
A 3/6 ARM loan is a type of adjustable-rate mortgage (ARM).
- “3” = the number of years your interest rate stays fixed
- “6” = after the first three years, the rate adjusts once every six months
How 3/6 ARM rates work
The interest rate on a 3/6 ARM works a little differently depending on where you are in the lifespan of the loan.
Initial fixed rate (years 1–3)
For the first three years, your interest rate stays the same. That usually means your principal-and-interest payment stays steady too, although your total monthly payment can still shift a little based on things like homeowners insurance premiums and property taxes.
Adjustment period (year 3 onward)
Once the fixed period ends, your new rate is typically based on the simple index + margin = your (new) rate equation. Here’s what that means:
- Index: A number that moves with market conditions. Many lenders use benchmarks like the Secured Overnight Financing Rate, or SOFR, to set their index.
- Margin: A set number your lender adds that generally doesn’t change after closing.
Rate caps
Most ARMs include caps that limit how much your rate can change at key points:
- Initial adjustment cap: Limits the first jump after year 3 (commonly around 2%)
- Subsequent adjustment cap: Limits how much the interest rate can increase or decrease at each adjustment after the first (commonly around 2%)
- Lifetime cap: Limits total increases over the life of the loan (commonly around 5%)
Rate caps cheat sheet
When you see caps written like “2/1/5,” it generally means the rate can rise by up to 2% at the first reset, 1% on later annual resets and 5% total over the life of the loan.
Two lenders might offer the same intro rate but very different caps, so be sure to compare them closely.
Why rates on a 3/6 ARM are often lower than fixed rates
Lenders often price ARMs lower during the fixed period because the borrower takes on the risk that rates could rise later. That might translate to lower payments early on, especially compared to a 30 year fixed-rate mortgage.
Pros and cons of a 3/6 ARM
As with any mortgage, there are some pros and cons to consider before you commit to a 3/6 ARM.
| Pros | Cons |
|---|---|
Often comes with a lower introductory rate than a fixed-rate loan | Less long-term predictability than a fixed-rate loan |
Can work well if you expect your income to grow in the next few years | Your monthly payment may increase with market rates |
Can make sense if you plan to move or refinance before the fixed period ends | There’s no guarantee that interest rates will be more favorable if you refinance later |
Gives you a shorter window of payment stability than some longer ARMs |
Who might benefit most from a 3/6 ARM?
A 3/6 ARM can be especially appealing if you:
- Plan to move within three years
- Expect to refinance before the first adjustment period
- Feel confident that your finances can absorb a higher payment later
3/6 ARM vs. 5/6 ARM vs. 10/6 ARM vs. fixed-rate mortgages
Let’s take a quick look at how rates work for some common mortgage types:
Loan type | Fixed-rate period | Adjustment schedul | Typical tradeoff |
|---|---|---|---|
3/6 ARM | 3 years | Adjusts every 6 months | Often the lowest intro rate; rate risk starts the soonest |
5/6 ARM | 5 years | Adjusts every 6 months | Intro rate is often slightly higher than a 3/6 ARM; rate risk starts later |
10/6 ARM | 10 years | Adjusts every 6 months | More predictability up front; usually higher intro rate than shorter ARMs |
30-year fixed | 30 years | Does not adjust | Maximum stability; usually higher starting rate than ARMs |
3 years | Adjusts every 6 months | ||
5 years | Adjusts every 6 months | ||
10 years | Adjusts every 6 months | ||
30 years | Does not adjust |