Adjustable-Rate Mortgage - ARM

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DEFINITION of 'Adjustable-Rate Mortgage - ARM'

A type of mortgage in which the interest rate paid on the outstanding balance varies according to a specific benchmark. The initial interest rate is normally fixed for a period of time after which it is reset periodically, often every month. The interest rate paid by the borrower will be based on a benchmark plus an additional spread, called an ARM margin.

An adjustable rate mortgage is also known as a "variable-rate mortgage" or a "floating-rate mortgage".

INVESTOPEDIA EXPLAINS 'Adjustable-Rate Mortgage - ARM'

Both 2/28 and 3/27 mortgages are examples of ARMs. A 2/28 mortgage's initial interest rate is fixed for a period of two years and then resets to a floating rate for the remaining 28 years of the mortgage. A 3/27 mortgage is typically the same as a 2/28 mortgage, except that the interest rate is fixed for three years and then floats for the remaining 27 years of the mortgage.

RELATED TERMS
  1. Annual Cap

    A clause found in the contract of an adjustable-rate mortgage ...
  2. Lifetime Cap

    The maximum interest rate on an adjustable-rate mortgage (ARM) ...
  3. 2/28 Adjustable-Rate Mortgage - ...

    A type of adjustable-rate mortgage that has a two-year fixed ...
  4. 3/27 Adjustable-Rate Mortgage - ...

    A type of adjustable-rate mortgage (ARM) frequently offered to ...
  5. Mortgage Index

    The benchmark interest rate an adjustable-rate mortgage's fully ...
  6. ARM Margin

    A fixed percentage rate that is added to an index value to determine ...
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