Definition
A mortgage with an interest rate that starts with a fixed period (typically 5, 7, or 10 years) and then adjusts periodically based on a benchmark index plus a set margin. After the initial fixed period, the rate can move up or down annually, subject to caps that limit changes at each adjustment and over the loan's lifetime. ARMs offer lower initial rates than fixed-rate mortgages but carry uncertainty about future payments.
Related Mortgage Terms
- Fixed-Rate Mortgage
A mortgage with an interest rate that remains constant for the entire loan term,...
- Interest Rate
The cost of borrowing money, expressed as a percentage of the loan amount charge...
- Refinance
The process of replacing an existing mortgage with a new one, typically to secur...
- Amortization
The process of paying off a mortgage through regular monthly payments of princip...
- Annual Percentage Rate (APR)
The total annual cost of a mortgage expressed as a percentage, including the int...
Understanding mortgage terminology helps you compare loan offers and make informed decisions. Use our mortgage calculator to see how these terms affect your monthly payment.