MORTGAGE GLOSSARY
What Is an Adjustable-Rate Mortgage (ARM)?
The short definition
An adjustable-rate mortgage (ARM) has an interest rate that's fixed for an initial period — often 5, 7, or 10 years — and then adjusts periodically after that based on market conditions, within limits set by the loan.
Why buyers choose it
ARMs often start with a lower rate than a comparable fixed-rate mortgage, which can mean lower payments during the initial fixed period.
The tradeoff
Once the fixed period ends, the rate — and your payment — can go up (or down) based on market conditions. This makes ARMs better suited to buyers who plan to sell or refinance before the adjustable period begins, rather than those planning to stay long-term.
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