Adjustable-rate Mortgage

This Issue in United States

Adjustable-rate Mortgage (ARM) in the Context of Mortgage Refinancings

In this context, a definition of Adjustable-rate Mortgage (ARM) may be distilled, worded as follows: A mortgage that does not have a fixed interest rate. The rate changes during the life of the loan based on movements in an index rate, such as the rate for Treasury securities or the Cost of Funds Index. ARMs usually offer a lower initial interest rate than fixed-rate loans. The interest rate fluctuates over the life of the loan based on market conditions, but the loan agreement generally sets maximum and minimum rates. When interest rates increase, generally your loan payments increase; and when interest rates decrease, your monthly payments may decrease. For more information on ARMs, see the Consumer Handbook on Adjustable-Rate Mortgages produced by the Federal Reserve Board.