Adjustable-Rate Mortgage (ARM)
A mortgage with a low fixed rate for an initial period that then adjusts periodically based on a market index.
What does adjustable-rate mortgage mean?
An ARM saves money early but exposes you to higher payments after it resets. It suits buyers who expect to move or refinance before the reset. Rate caps limit how high each adjustment and the lifetime rate can go.
Put it to use
Related terms
Adjustable-Rate Mortgage — frequently asked
How often does an ARM adjust?
After the initial fixed period — the first number in “5/1” or “7/6” — the rate resets on the second number’s schedule (yearly for 5/1, every six months for 7/6), moving with an index plus a fixed margin, within caps.
Is an adjustable-rate mortgage a good idea?
An ARM can beat a fixed loan if you will move or refinance before the fixed period ends, since the intro rate is lower. The risk is a higher payment once it adjusts, so it suits shorter horizons more than long-term owners.