Fixed-Period ARM

AAA

DEFINITION of 'Fixed-Period ARM'

An adjustable-rate mortgage (ARM) with an initial fixed-interest-rate period. After the fixed-interest rate expires, the interest rate starts to adjust based on an index plus a margin.  The amount by which the interest rate can adjust after the fixed period is usually subject to an interest rate cap structure. 

These are often called "hybrid ARMs".

INVESTOPEDIA EXPLAINS 'Fixed-Period ARM'

Typically, in the prime mortgage market, fixed-period ARMs are offered with fixed-interest rate periods of three, five, seven and 10 years. In the subprime market a two-year fixed-rate period is frequently offered. Typically, the shorter the fixed-interest rate period, the lower the interest rate will be. A borrower should carefully consider their time horizon when choosing a fixed-period ARM and recognize the risks associated with the expiration of the fixed-interest rate period.

RELATED TERMS
  1. Mortgage

    A debt instrument, secured by the collateral of specified real ...
  2. Hybrid ARM

    A hybrid adjustable-rate mortgage blends the characteristics ...
  3. Payment Option ARM

    A monthly adjusting adjustable-rate mortgage (ARM) which allows ...
  4. Interest Rate Cap Structure

    Limits to the interest rate on an adjustable-rate loan - frequently ...
  5. Two-Step Mortgage

    A mortgage that offers an initial fixed-interest rate for a period ...
  6. Adjustable-Rate Mortgage - ARM

    A type of mortgage in which the interest rate paid on the outstanding ...
RELATED FAQS
  1. What is the difference between "closed end credit" and a "line of credit?"

    Depending on the need, an individual or business may take out a form of credit that is either open- or closed-ended. While ... Read Full Answer >>
  2. In what instances does a business use closed end credit?

    The most common types of closed-end credit used by both businesses and individuals are mortgages and auto loans. Businesses ... Read Full Answer >>
  3. What are the long-term effects of delinquent accounts?

    Delinquency occurs when borrowers fail to make payments on their loans. All loan borrowers should do their best to avoid ... Read Full Answer >>
  4. How was the American Dream impacted by the housing market collapse in 2008?

    The American Dream was seriously damaged by the housing market collapse in 2008. In many ways, the American Dream is a self-fulfilling ... Read Full Answer >>
  5. How much risk is associated with subprime mortgages?

    A large amount of risk is associated with subprime mortgages. Since the mortgages are specifically for people who do not ... Read Full Answer >>
  6. What are the financial consequences of filing for bankruptcy?

    The financial consequences of filing for bankruptcy are substantial and can be long-lasting. They include impacts on your ... 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. Credit & Loans

    How Mortgage Refinancing Affects Your Net Worth

    Find out how to determine whether refinancing will put you ahead or even more behind.
  3. Credit & Loans

    Mortgages: Fixed-Rate Versus Adjustable-Rate

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

    Understanding Your Mortgage

    We walk through the steps needed to secure the best loan to finance the purchase of your home.
  5. Credit & Loans

    Understanding The Mortgage Payment Structure

    We explain the calculation and payment process as well as the amortization schedule of home loans.
  6. Retirement

    Is Cohousing Right for You?

    Cohousing isn't for everyone. But if you're community-minded or committed to living green, it may be an ideal option for you.
  7. Home & Auto

    Are Home Inspections Worth It? - Price vs. Value

    If you’re wondering whether home inspection is worth the investment, the following information will help you decide.
  8. Home & Auto

    How the Fed Affects Reverse Mortgages

    An in depth look at how the Federal Reserve affects reverse mortgages.
  9. Investing

    Where Are Real Estate Stocks Heading?

    We summarize five economic reports that investors should monitor monthly to keep them informed of where real estate and its related stocks are heading.
  10. Home & Auto

    Protect Yourself Against Reverse Mortgage Scams

    You could lose not only money, but also your home, if you fall for these schemes.

You May Also Like

Hot Definitions
  1. Dog And Pony Show

    A colloquial term that generally refers to a presentation or seminar to market new products or services to potential buyers.
  2. Topless Meeting

    A meeting in which participants are not allowed to use laptops. A topless meeting organizer can also ban the use of smartphones, ...
  3. Hedging Transaction

    A type of transaction that limits investment risk with the use of derivatives, such as options and futures contracts. Hedging ...
  4. Bogey

    A buzzword that refers to a benchmark used to evaluate a fund's performance. The benchmark is an index that reflects the ...
  5. Xetra

    An all-electronic trading system based in Frankfurt, Germany. Launched in 1997 and operated by the Deutsche Börse, the Xetra ...
  6. Nuncupative Will

    A verbal will that must have two witnesses and can only deal with the distribution of personal property. A nuncupative will ...
Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!