On an adjustable-rate mortgage, your new rate at each change date is the index plus the margin, rounded as your note says, then limited by the caps. The index is a published market rate named in your note. The margin is a fixed number of percentage points set when you close, and it does not change. The caps limit how far the rate can move at the first change, at each later change, and over the life of the loan. Your Loan Estimate shows these terms in the Adjustable Interest Rate table (12 CFR 1026.37(j)).
The index is an outside rate the lender does not control. ARMs sold to Fannie Mae must be tied to the Secured Overnight Financing Rate, using a 30-day average of SOFR published by the Federal Reserve Bank of New York (Fannie Mae B2-1.4-02). Other ARMs, including some government and non-agency loans, may use a different index. Your note names it.
The margin is added to the index on each change date. It is set at closing and stays the same for the life of the loan. Fannie Mae's rules also say the rate can never fall below the margin, regardless of any downward cap.
Caps are often written as three numbers, such as initial, periodic and lifetime. This article does not print typical cap values, because they vary by product. Read your own disclosure.
A name like 5/6 tells you the schedule: a fixed rate for the first five years, then adjustments every six months. It does not tell you the caps or the margin. A 7/6 or 10/6 works the same way with a longer fixed period. See adjustable-rate mortgages for when an ARM fits.
These notices give you time to plan, including time to look at a refinance if it makes sense.
Fictional example: a borrower with a 5/6 ARM reaches the first change date. On that date, the index plus the margin would move the rate up by more than the initial adjustment cap allows. The cap holds the increase to the maximum the note permits. Six months later, the periodic cap applies to the next change. The lifetime cap sets the ceiling the rate can never pass. If the index falls instead, the rate can drop, but not below the margin. No rate figures are shown here because they depend on the market and the note.
The CFPB's Consumer Handbook on Adjustable-Rate Mortgages explains these terms in detail. Compare with a fixed-rate mortgage, and see how amortization resets on an ARM in loan term.
If you are weighing an ARM against a fixed rate, I can show you the worst-case path under the caps next to the fixed option. Book a call, or start an application.
Links checked Oct 21, 2026.
About the author: McKade Lively, NMLS 2704474, American Pacific Mortgage Corporation dba True North Home Loans, NMLS 1850.
Equal Housing Opportunity.
Last reviewed: Oct 2026