What is Adjustable rate mortgage ?
Definition of Adjustable rate mortgage
The adjustable rate mortgage or the ARM is defined as a mortgage contract in which the interest rate that is applied to the outstanding balance is subject to change over the full time period of the loan.
Brief Explanation of Adjustable rate mortgage
Usually when the mortgage contract is sealed certain fixed interest rate is set initially. This interest rate remains unchanged over a period of time after which it is the reset. The changes in the interest rate often occur periodically, usually on monthly or yearly bases. The reset interest rates which are then based on an index plus an additional spread or a bench are referred to as an ARM margin. These ARM’s are also called the variable or floating rate mortgage. One part of the ARM number expresses the time period for which the fixed rate is applied on the mortgage while the second part of the ARM number can have various definitions regarding what it indicates. Once the fixers interest rate period is over the ARM interest rates vary depending upon the index plus a set margin.