Discretionary ARM

AAA

DEFINITION of 'Discretionary ARM'

An adjustable-rate mortgage on which the lender has the right to change the interest rate at any time, by any amount, subject only to the borrower being given a certain period advanced notice. This differs from a more structured adjustable-rate mortgage on which the interest rate consists of an index value plus a margin, adjusts only on predetermined dates and is limited by an interest rate cap structure.

INVESTOPEDIA EXPLAINS 'Discretionary ARM'

Discretionary ARMs do not exist in the United States, but are popular mortgages in Europe and other developed countries where fixed-rate mortgages are rare. ARMs that are offered in the United States can be more difficult to understand than discretionary ARMs, but they offer the borrower greater protection from interest rate movements.

RELATED TERMS
  1. Mortgage

    A debt instrument, secured by the collateral of specified real ...
  2. Mortgage Index

    The benchmark interest rate an adjustable-rate mortgage's fully ...
  3. Negative Amortization

    An increase in the principal balance of a loan caused by making ...
  4. Deferred Interest

    The amount of interest that is added to the principal balance ...
  5. Interest Rate Cap Structure

    Limits to the interest rate on an adjustable-rate loan - frequently ...
  6. Adjustable-Rate Mortgage - ARM

    A type of mortgage in which the interest rate paid on the outstanding ...
RELATED FAQS
  1. Is the banking sector subject to any seasonal trends?

    The banking industry, including retail and investment banks, is subject to seasonal trends. Seasonality is most commonly ... Read Full Answer >>
  2. What is the difference between an Equity REIT and a Mortgage REIT?

    There are several types of real estate investments trusts (REITS) that investors can purchase, including equity REITS and ... Read Full Answer >>
  3. Can small investors buy collateralized mortgage obligations (CMOs)?

    Collateralized mortgage obligations (CMOs), which are pools of mortgage-backed securities (MBS), are available to smaller ... Read Full Answer >>
  4. What is the difference between an option-adjusted spread and a Z-spread in reference ...

    Unlike the Z-spread calculation, the option-adjusted spread takes into account how the embedded option in a bond can change ... Read Full Answer >>
  5. What are some historical examples of debt securitization?

    The first debt securities were probably sovereign debt assets that were transferred from the British government to mercantilist ... Read Full Answer >>
  6. What price-to-book ratio is considered average in the chemicals sector?

    You can use Microsoft Excel to calculate the loan-to-value ratio if you have the mortgage amount and appraised value of a ... Read Full Answer >>
Related Articles
  1. Insurance

    ARMed And Dangerous

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

    Make A Risk-Based Mortgage Decision

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

    Option ARMs: American Dream Or Mortgage Nightmare?

    Option adjustable rate mortgages could make or break your home-buying experience.
  4. Home & Auto

    What Are The Tax Advantages Of Buying A Home?

    Don't forget these deductions and credits that homeowners can use to reduce their tax bill.
  5. Credit & Loans

    How To Finance Foreign Real Estate

    If you don't pay cash, financing real estate abroad is likely to cost more than at home. Watch for local laws and be sure your rights are protected.
  6. Credit & Loans

    Save? (Or Prepay Your Mortgage Or Student Loan?)

    With low-interest rate loans, you might be better off paying just your monthly minimum and investing whatever extra funds you have.
  7. Credit & Loans

    Not a U.S. Citizen? A Home Loan is Still Possible

    Many banks and mortgage companies offer conventional and FHA home loans to non-U.S. citizens, if they can verify their work history and financial status.
  8. Credit & Loans

    Is it Worth Saving Up for a Bigger Down Payment?

    There are numerous low-down-payment mortgage options out there, but sometimes it makes sense to build up your savings so you can borrow less.
  9. Credit & Loans

    Is A 30-Year Mortgage Really Best?

    It's the most popular choice, but home buyers with 30-year mortgages may be paying more to finance their home than they need to.
  10. Credit & Loans

    What Are The Pros and Cons Of A 15-Year Mortgage?

    The shorter term, and higher monthly payment, are only part of the picture.

You May Also Like

Hot Definitions
  1. Fracking

    A slang term for hydraulic fracturing. Fracking refers to the procedure of creating fractures in rocks and rock formations ...
  2. Mixed Economic System

    An economic system that features characteristics of both capitalism and socialism.
  3. Net Worth

    The amount by which assets exceed liabilities. Net worth is a concept applicable to individuals and businesses as a key measure ...
  4. Stop-Loss Order

    An order placed with a broker to sell a security when it reaches a certain price. A stop-loss order is designed to limit ...
  5. Covered Call

    An options strategy whereby an investor holds a long position in an asset and writes (sells) call options on that same asset ...
  6. Butterfly Spread

    A neutral option strategy combining bull and bear spreads. Butterfly spreads use four option contracts with the same expiration ...
Trading Center