5/6 Hybrid Adjustable-Rate Mortgage (5/6 Hybrid ARM) A 5/6 hybrid adjustable-rate mortgage (ARM) carries a fixed interest rate for the first five years, then the rate adjusts every six months for the remainder of the loan term. It blends features of a fixed-rate mortgage (initial stability) with those of an ARM (later variability). Key takeaways
* Fixed rate for the first five years; rate resets every six months thereafter.
* Subsequent rates are tied to a benchmark index plus a lender margin.
* Many 5/6 ARMs include caps that limit how much the rate can rise, but payments can still increase and become unaffordable if rates climb.
How a 5/6 Hybrid ARM works
* Initial period: Borrower pays a fixed interest rate for five years.
* Adjustment period: After five years, the interest rate resets every six months based on:
* A benchmark index (e.g., the prime rate or Constant Maturity Treasury, CMT).
* A lender-added margin (a fixed number of percentage points).
* Fully indexed rate = index + margin. Example: index 4% + margin 3% = 7% interest.
Indexes and reset frequency
* Common indexes: prime rate, CMT, and others chosen by the lender.
* Reset frequency matters:
* More frequent resets (every six months) mean the borrower’s rate will reflect market moves sooner.
* In a rising-rate environment, less frequent resets (e.g., a 5/1 ARM, which adjusts annually) may be preferable because the rate won’t change as often.
* In a falling-rate environment, more frequent resets can allow the borrower to benefit sooner from rate declines.
Rate caps and protections Most ARMs include caps to limit increases:
Periodic caps: limit how much the rate can change at each reset.
 Lifetime (aggregate) caps: limit the total increase over the life of the loan.
Caps vary by loan; always confirm the specific cap structure with the lender. Explore More Resources

Advantages
* Lower initial interest rates compared with typical fixed-rate mortgages, which can mean lower monthly payments during the fixed period.
* Potential savings if you plan to sell or refinance before the adjustable period begins.
Disadvantages and risks
* Interest rate risk: after five years, rates can increase every six months, potentially raising monthly payments significantly.
* Complexity: you must understand index, margin, caps, reset frequency, and any prepayment penalties.
* Uncertainty for long-term planning compared with a fixed-rate mortgage.
How the initial and adjustable rates are set
* Initial five-year fixed rate is based on your credit profile and prevailing market rates at loan origination.
* After five years, the adjustable rate = selected index + lender margin, subject to cap limits.
When a 5/6 ARM might make sense
* You expect to sell the home or refinance before the adjustable period begins.
* You anticipate stable or falling interest rates in the medium term.
* You want a lower initial rate and are comfortable with some interest-rate risk.
Questions to ask a lender before choosing a 5/6 ARM
* Which index is used and what is the current index value?
* What is the lender’s margin?
* What are the periodic and lifetime rate caps?
* Are there prepayment penalties or other fees?
* How often will payments be recalculated and could the payment amount (not just the rate) change?
Bottom line A 5/6 hybrid ARM offers a lower fixed rate for five years, then adjustments every six months tied to an index plus a margin. It can reduce early payments and be attractive if you plan a short-term stay or refinancing, but it exposes you to periodic rate increases and greater long-term payment uncertainty. Carefully review index, margin, cap structure, and fees before deciding.