Business, Legal & Accounting Glossary

Definition: ARM


Quick Summary of ARM

A loan with an interest rate that changes periodically in keeping with a current index, such as one-year treasury bills.

Full Definition of ARM

An ARM is an acronym standing for an adjustable-rate mortgage, a loan instrument commonly offered on residential properties. Unlike with fixed-rate mortgages, the interest rate on an ARM loan is tied to an index and may rise and fall accordingly. The 11th District Cost of Funds Index (COFI), the 12-month Moving Treasury Average (MTA), the 12-month Treasury Bill index (T-Bill), and the London Interbank Offered Rate (LIBOR) are among the indexes used as a benchmark/base rate for ARM loans. The initial mortgage and rate on an ARM can remain in effect for a period ranging from one month to seven years or more, after which it adjusts to the indexed rate plus any margin. This interval is called the adjustment period; the rate and payment adjusts after one year on a 1-year ARM and after three years on a 3-year ARM. Lenders typically add a margin of fixed percentage points to the benchmark rate of an ARM which is often based on the borrower’s credit record. For example, if the indexed rate is 3% and the margin is 4%, the borrower pays a full rate of 7% on their ARM. Interest rate caps may be applied in an effort to prevent the rate on an ARM from exceeding a specified limit. The hybrid ARM, a popular variation on the ARM, has a fixed rate of 3 to 10 years and is pegged to an index thereafter. Other variations of ARM include the interest-only ARM (I-O ARM) and the payment-option ARM.

Examples of ARM in a sentence

Many people finance their homes using an adjustable-rate mortgage hoping that the economy stays healthy so that their interest rates will not go up.
She moved from a fixed-rate to an adjustable-rate mortgage just before the stock market lost half its value, and in the subsequent recession, saw her mortgage payments double.

Synonyms For ARM

adjustable-rate mortgage

Cite Term

To help you cite our definitions in your bibliography, here is the proper citation layout for the three major formatting styles, with all of the relevant information filled in.

Page URL
Modern Language Association (MLA):
ARM. Payroll & Accounting Heaven Ltd.
May 27, 2023
Chicago Manual of Style (CMS):
ARM. Payroll & Accounting Heaven Ltd. (accessed: May 27, 2023).
American Psychological Association (APA):
ARM. Retrieved May 27, 2023
, from website:

Definition Sources

Definitions for ARM 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: 13th February, 2020 | 0 Views.