Adjustable-Rate Mortgage (ARM)
A home loan whose interest rate is fixed for an initial period and then adjusts on a set schedule based on a market index.
An adjustable-rate mortgage carries an interest rate that resets at predetermined intervals after an introductory fixed window. The most common structures are 5/6, 7/6, and 10/6 ARMs, the first number is how many years the starting rate is locked, and the second indicates how often the rate adjusts in months once the fixed period ends.
Adjustments are calculated by adding a fixed margin (set by your lender at origination) to a published index such as SOFR. Caps limit how much the rate can move at the first adjustment, at each subsequent adjustment, and over the life of the loan, so even in a rising-rate environment your payment cannot spike without ceiling.
ARMs typically offer a lower starting rate than a comparable fixed-rate mortgage, which can make sense if you plan to sell or refinance before the fixed period ends. They carry payment-shock risk if you stay in the loan past the initial reset, so the math should always include a worst-case scenario.
Related terms
Other terms you'll see alongside Adjustable-Rate Mortgage
A home loan whose interest rate stays the same for the entire repayment period.
The percentage of the loan balance the lender charges as the cost of borrowing, paid annually but accrued daily.
A lender's commitment to honor a specified interest rate for a defined period, regardless of market movement.
Replacing an existing mortgage with a new one, typically to lower the rate, change the term, or extract equity.
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