What is ARM?

What is ARM?

ARM is the abbreviation of Adjustable Rate Mortgage. An ARM is a mortgage where the interest changes (adjusts) up and down depending on the market interest. It is usually capped so it can't go too high or too low. ARM is the opposite of fixed rate.

The date the interest changes for an ARM is called adjustment date. It can be many times during the life of the loan. The adjustment interval specified in your terms will state how often the interest can change. It varies greatly, but is usually every year, three years, or five years.

The Adjustment Index, which is a published market index, can be used to calculate the interest rate of an ARM.

Sometimes there is a conversion clause in an ARM that allows you to change to a fixed-rate loan at some point during the loan. Sometimes a clause like this costs extra.

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