Adjustable-Rate Mortgage

Definition

• An "Adjustable Rate Mortgage" or ARM refers to the type of mortgage loan where the interest rate and monthly payments can be adjusted to rise and fall with market conditions. The interest rate and payments can be adjusted as frequently as once a month or you can adjust the principal loan balance or the loan term to reflect the rate change.

Notes
A type of variable rate mortgage product.

Synonyms
non-fixed, shifting, variable

Acronyms
ARM

Alternate Spellings
Adjustable Rate

Related Terms and Acronyms

• Adjustment Period — Definition,
  • The time between changes in the interest rate in an adjustable-rate mortgage.
• Cap — Definition,
  • A limit imposed on an item.
  • The top limit on the amount the interest rate can increase during a single time period of an adjustable-rate mortgage. Every ARM has two caps: a periodic cap, which limits the periodic changes to the interest allowed in the loan agreement, and a lifetime cap, which governs the total increase that can be imposed during the life of the loan.
• Change Frequency — Definition,
  • The scheduled period in which an adjustable-rate mortgage adjusts.
• Convertible ARM — Definition,
  • An adjustable rate mortgage (ARM) that can be converted to a fixed-rate mortgage under certain conditions.
• Convertible Mortgage — Definition, Important,
  • A mortgage where the borrower has the option at specified times to change the term length.
• Fixed Rate Mortgage (FRM) — Acronym, Very Important,
  • A loan in which the interest rate and payments remain the same for the entire life of the loan. The interest rate and payment amounts are set at the time of loan origination.
• Initial Interest Rate — Definition,
  • The introductory interest rate on an adjustable-rate mortgage (ARM), which usually changes at a predetermined time.
• Interest Adjustment Date — Definition,
  • The date one month prior to the beginning of amortization when accrued interest computed on the monies advanced becomes due.
• Interest Rate Cap — Definition,
  • A limit to the interest rate increases and decreases on an adjustable rate loan; either from one adjustment period to the next or over the life of the loan.
• Lock-in — Definition,
  • A lender's guarantee that the mortgage rate quoted will not change for a specific period. The borrower wants the lock to stay in effect until closing.
• Mortgage (mtg) — Abbreviation, Important,
  • A mortgage is a contract stipulating a specific real property, typically a residence or building, as collateral for a loan. The mortgage incurs a rate of interest that varies according to term and other features.
• Mortgage Rate — Definition, Very Important,
  • The interest rate on a mortgage loan.
  ➥ You can compare mortgage rates using this website by clicking 'Rates' above.
• One-year Adjustable — Definition,
  • Mortgage whose annual rate changes yearly. The rate is usually based on movements of a published index plus a specified margin, chosen by the lender.
• Payment Adjustment Period — Definition,
  • The time period where payments on an adjustable-rate mortgage (ARM) may fluctuate.
• Payment Cap — Definition,
  • A contractual limit on the size of the monthly payment of an adjustable-rate mortgage or other variable rate loan.
• Periodic Rate Cap — Definition,
  • In an adjustable-rate mortgage (ARM), it limits how much an interest rate can increase or decrease from one adjustment period to the next.
• Qualifying Rate — Definition,
  • The mortgage rate that one must qualify for when applying for a variable rate or a term less than 5 years, so that if rates increase, the borrower can continue to make payments.
• Roll Over Mortgage — Definition, Important,
  • A type of loan where the interest rate is set for a specific term. At the end of this term, the mortgage is said to "roll-over" and the borrower and lender may agree to extend the loan. If satisfactory terms cannot be agreed upon, the lender is entitled to be repaid in full. In this case, the borrower may seek alternative financing.
• Variable Interest Rate — Definition,
  • Percentage that a borrower pays for the use of money, and which moves up or down periodically based on changes in other interest rates.
• Variable Rate Mortgage (VRM) — Acronym, Very Important,
  • Home loan in which the interest rate is changed periodically based on a standard financial index. Also called an "Adjustable-rate Mortgage."
  ➥ A type of mortgage loan offered by brokers and lenders.