Adjustable Rate Mortgage

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Definition: Adjustable Rate Mortgage


Quick Summary of Adjustable Rate Mortgage


A mortgage loan with an interest rate that fluctuates in accordance with a designated market indicator — such as the weekly average of one-year U.S. Treasury Bills — over the life of the loan. To avoid constant and drastic fluctuations, ARMs typically limit how often and by how much the interest rate can vary.



Full Definition of Adjustable Rate Mortgage


An adjustable-rate mortgage (ARM) is a type of mortgage on which the interest rate is typically changed by a lender after a predetermined initial time period. The term of the adjustable-rate mortgage consists of two phases. During the early phase of the term, the adjustable-rate mortgage has a fixed rate of interest. After that, the interest rate of the adjustable-rate mortgage is altered by the lender. Unlike an FRM (fixed-rate mortgage), an adjustable-rate mortgage interest stability is limited to ten years. Thus, a five-year adjustable-rate mortgage will offer a fixed rate for five years. Although lenders are authorized to make rate changes in the adjustable-rate mortgage, they do so based on pre-selected interest rate indexes such as LIBOR. In the United States lenders have no discretion over rate changes in ARMs, since every adjustable-rate mortgage is tied to an index. Most lenders offer a low introductory rate. Therefore, the interest rate of the adjustable-rate mortgage is usually adjusted upward.


Synonyms For Adjustable Rate Mortgage


ARM

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Definition Sources


Definitions for Adjustable Rate Mortgage are sourced/syndicated and enhanced from:

  • A Dictionary of Economics (Oxford Quick Reference)
  • Oxford Dictionary Of Accounting
  • Oxford Dictionary Of Business & Management

This glossary post was last updated: 22nd April, 2020 | 0 Views.