Adjustable Rate Mortgage
A flexible loan with lower initial rates and payments.
An adjustable rate mortgage (ARM) is a mortgage in which the interest rate may change over time.
With an adjustable rate mortgage, the interest rate may change periodically, usually in relation to an index (such as the London Interbank Offered Rate, or LIBOR), and payments may “adjust” up or down accordingly.
Unlike a fixed rate mortgage, homeowners with this type of home loan aren’t guaranteed the same interest rate for the duration of their loan. The risk of an increasing interest rate is something that borrowers should take into account when considering an adjustable rate mortgage for their home financing.