Adjustable-Rate Mortgage - ARM

AAA

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. 2/28 Adjustable-Rate Mortgage - ...

    A type of adjustable-rate mortgage that has a two-year fixed ...
  3. Lifetime Cap

    The maximum interest rate on an adjustable-rate mortgage (ARM) ...
  4. Interest Rate Ceiling

    The maximum interest rate that a financial institution can charge ...
  5. Floater

    A bond or other type of debt whose coupon rate changes with market ...
  6. 3/27 Adjustable-Rate Mortgage - ...

    A type of adjustable-rate mortgage (ARM) frequently offered to ...
Related Articles
  1. Insurance

    ARMed And Dangerous

    In a climate of rising interest rates, having an adjustable-rate mortgage can be risky.
  2. Credit & Loans

    Mortgages: Fixed-Rate Versus Adjustable-Rate

    Both of these have advantages and disadvantages depending on your financial needs and prospects.
  3. Personal Finance

    Understanding Your Mortgage

    We walk through the steps needed to secure the best loan to finance the purchase of your home.
  4. Options & Futures

    Make A Risk-Based Mortgage Decision

    Find out how to choose which mortgage style is right for you.
  5. Home & Auto

    5 Risky Mortgage Types To Avoid

    There are plenty of ways to end up with a bad mortgage. The risks of these five should make every homebuyer think twice before signing.
  6. Home & Auto

    Adjustable-Rate Mortgage Indexes: Know Your Benchmark

    Understanding these benchmarks can help you select the most competitive adjustable-rate loan.
  7. Investing Basics

    Subprime Lending: Helping Hand Or Underhanded?

    These loans can spell disaster for borrowers, but that doesn't mean they should be condemned.
  8. Home & Auto

    Option ARMs: American Dream Or Mortgage Nightmare?

    Option adjustable rate mortgages could make or break your home-buying experience.
  9. Credit & Loans

    Getting A Mortgage After Bankruptcy Or Foreclosure

    Millions of Americans had homes foreclosed and millions more went into bankruptcy. Here are the necessary qualifying steps to buying a home again.
  10. Taxes

    Will Itemized Deductions Get You A Bigger Refund?

    April and taxes are due soon. If you need to file your return, you might have to decide if itemizing your deductions this year will net you a better deal.

You May Also Like

Hot Definitions
  1. Asset Class

    A group of securities that exhibit similar characteristics, behave similarly in the marketplace, and are subject to the same ...
  2. Fiat Money

    Currency that a government has declared to be legal tender, but is not backed by a physical commodity. The value of fiat ...
  3. Interest Rate Risk

    The risk that an investment's value will change due to a change in the absolute level of interest rates, in the spread between ...
  4. Income Effect

    In the context of economic theory, the income effect is the change in an individual's or economy's income and how that change ...
  5. Price-To-Sales Ratio - PSR

    A valuation ratio that compares a company’s stock price to its revenues. The price-to-sales ratio is an indicator of the ...
  6. Hurdle Rate

    The minimum rate of return on a project or investment required by a manager or investor. In order to compensate for risk, ...
Trading Center