U.S. Mortgage Index

Adjustable-rate mortgage

Also called ARM

Definition

An adjustable-rate mortgage is a home loan whose interest rate can change after a set introductory period. Later payments can rise or fall when the rate is reset.

In plain English

Some mortgages keep one interest rate for the whole term. An adjustable-rate mortgage does not. It usually starts with a stated introductory rate, then the rate can move when the contract says it may be adjusted. How often the rate can change, what index it follows, and what caps apply are loan terms—not a universal schedule. This page describes the product idea, not a prediction of where rates will go.

Technical definition

Consumer glossaries treat an ARM as a mortgage with an interest rate that can change over time. The rate used to calculate later payments is not the same concept as the dollar amount of interest charged in a period.

Why it matters

Borrowers, researchers, and comparison pages need to know that the rate on this product is not locked for the full term the way a fixed-rate mortgage is.

Example

Jordan’s loan begins at one interest rate. After the introductory period in the note, the servicer calculates a new rate using the method the contract names. The monthly payment can change even though the remaining principal is the same debt.

Sources reviewed

Important note

An ARM is not defined by a single reset calendar or cap. Those details belong to the individual loan, not to this glossary page.