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. Convertible ARM

    An Adjustable Rate Mortgage (ARM) that gives the borrower the ...
  5. Adjustable-Rate Mortgage - ARM

    A type of mortgage in which the interest rate paid on the outstanding ...
  6. Mortgage Company

    A company engaged in the business of originating and/or funding ...
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. Credit & Loans

    What are the pros and cons of owning an equity REIT versus a mortgage REIT?

    Learn about investing in equity, mortgage and hybrid REITs. Explore the different strategies REITs employ to generate income and create dividends.
  7. Credit & Loans

    What is the debt ratio for an FHA loan?

    Borrowing through the Federal Housing Administration requires individuals to provide proof of income as well as information relating to total outstanding debt.
  8. Home & Auto

    What factors should I consider when shopping for the best mortgage lender?

    Comparing lenders to obtain the best mortgage loan requires research and willingness to shop around for the best loan to fit individual needs.
  9. Credit & Loans

    Buying A House? Avoid These 7 Mistakes

    Owning your own home gives you a feeling of independence that renting can’t offer, and there are big financial benefits, too.
  10. Professionals

    Should Your Retiring Clients Pay Off A Mortgage?

    Should your retiring clients pay off their mortgages? It's more complicated than 'yes' or 'no,' so here's a quick guide.

You May Also Like

Hot Definitions
  1. Commercial Paper

    An unsecured, short-term debt instrument issued by a corporation, typically for the financing of accounts receivable, inventories ...
  2. Federal Funds Rate

    The interest rate at which a depository institution lends funds maintained at the Federal Reserve to another depository institution ...
  3. Fixed Asset

    A long-term tangible piece of property that a firm owns and uses in the production of its income and is not expected to be ...
  4. Break-Even Analysis

    An analysis to determine the point at which revenue received equals the costs associated with receiving the revenue. Break-even ...
  5. Key Performance Indicators - KPI

    A set of quantifiable measures that a company or industry uses to gauge or compare performance in terms of meeting their ...
  6. Bank Guarantee

    A guarantee from a lending institution ensuring that the liabilities of a debtor will be met. In other words, if the debtor ...
Trading Center