Adjustable-Rate Mortgage (ARM)
Lending & MortgagesA mortgage where the interest rate changes periodically based on a benchmark index.
Example
Example: You take a 5/1 ARM at 5.75% on a $400,000 loan. For years 1-5, your payment is $2,334 — saving $190/month vs a 6.75% fixed rate. At year 6, the rate adjusts based on the index + margin. If rates rise to 7.75%, your payment jumps to $2,862 — $528/month more. If rates fall to 5.25%, your payment drops to $2,209. The ARM is a bet on future rates.