Loan basics
Adjustable-rate mortgage (ARM)
Abbreviation: ARM
Definition
An adjustable-rate mortgage (ARM) has a fixed rate for an initial period — commonly 5, 7 or 10 years — after which the rate adjusts periodically based on an index plus a margin, within caps. A 7/6 ARM, for example, is fixed for seven years and then adjusts every six months.
Adjustable-rate mortgage (ARM), explained
Caps limit the first adjustment, each later adjustment and the lifetime rate.
See ARM in a calculator
The ARM vs. Fixed-Rate Mortgage Calculator shows how this works with real numbers. Compare an adjustable-rate mortgage against a fixed-rate loan over the full term.
Open the ARM vs. Fixed-Rate Mortgage CalculatorRelated terms
- Annual percentage rate (APR)The annual percentage rate (APR) expresses the yearly cost of a loan including the interest rate plus certain finance charges such as points and some lender fees.
- AmortizationAmortization is the schedule by which a loan is repaid in equal periodic payments, each split between interest and principal.
Q.01What is ARM (Adjustable-rate mortgage)?
An adjustable-rate mortgage (ARM) has a fixed rate for an initial period — commonly 5, 7 or 10 years — after which the rate adjusts periodically based on an index plus a margin, within caps. A 7/6 ARM, for example, is fixed for seven years and then adjusts every six months.
Q.02When does an ARM make sense?
When you expect to sell or refinance before the fixed period ends and the ARM’s starting rate is meaningfully lower.
Explain it with their numbers
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