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Adjustable-rate mortgage (ARM)

Also called ARM.

A mortgage with a fixed starting rate for an initial period, after which the rate adjusts to an index plus a margin.

After the initial period, the rate resets to an index (a market interest rate) plus a margin the lender set when the loan was made, within any caps on how much it can change. Source 1

In a 5/1 ARM, the first number is how many years the starting rate lasts and the second is how often it adjusts after that, here once a year. Source 2

Related terms

Where it comes up

Sources

  1. Consumer Financial Protection Bureau: For an adjustable-rate mortgage, what are the index and margin, and how do they work? (opens in a new tab)
  2. Freddie Mac: Considering an adjustable-rate mortgage? Here's what you should know (opens in a new tab)

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