What is Adjustable-Rate Mortgage?
An adjustable-rate mortgage has an interest rate that can change after an initial fixed period, based on a specified index and margin.
An adjustable-rate mortgage, or ARM, starts with a fixed interest rate for a set period, then adjusts periodically. Borrowers meet it when they want a lower initial rate or expect to sell or refinance before adjustments begin. Watch for the index and margin, rate caps, and the fully indexed rate. Payment can increase significantly after the fixed period. Understand the adjustment frequency and lifetime cap. ARMs can be complex, so compare them carefully with fixed-rate mortgages.
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