ARM - Adjustable Rate Mortgage

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A mortgage in which the interest changes periodically, this product known as an ARM stands for Adjustable Rate Mortgage. The interest rate will fluctuate according to the index (examples of most common indexes used: MTA, CODI, COFI, COSI) which it is tied to, all ARM’s are tied to a specific index which will adjust. In addition to the adjustable index, these mortgages are tied to a margin which will be a fixed rate which is generally added to the index to determine the actual interest rate. 

These loans will normally have a fixed rate for a pre-determined period of time, generally 2, 3, 5, 7, or 10 years, before the loan begins adjusting. The life of these loans can be anywhere from 10 to 50 years, depending on the borrower’s choice of payment and choice in repayment term of their mortgage. Due to the ability of the loan’s interest rate to fluctuate after the set fixed term, the interest rates available for these ARM’s is normally lower than the interest rates available for the longer fixed rate term loans such as the 30 year fixed loan, or the more widely seen 40 and 50 year fixed rates. 

These loans are considered by individuals who are concerned with keeping a lower initial interest rate or who may only plan on keeping the mortgage and the home for a short period of time due to a planned move or plans to buy a larger home.