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Define Adjustable Rate An adjustable-rate mortgage (ARM) is a type of mortgage using a varying interest rate calculated by adding a premium to a specific benchmark rate. These loans are also called variable-rate mortgages or floating-rate mortgages.Arm Loan Definition 7/1 arm definition 7 1 Arm Definition – Westside Property – Definition. A 7 year ARM is a loan with a fixed rate for the first seven years, and an adjustable rate every year thereafter. Because the interest rate can change after the first seven years, the monthly payment may also change. hybrid mortgage.

adjustable rate mortgages Defined An ARM, short for "adjustable rate mortgage", is a mortgage on which the interest rate is not fixed for the entire life of the loan. The rate is fixed for a period at the beginning, called the "initial rate period", but after that it may change based on movements in an interest rate index.

3/1 ARM – Example. It has a 2% cap on each adjustment. It has no floor rate and a lifetime maximum interest rate of 12.75%. The index and margin are 5.2% and 1.55% respectively. Use the adjustable rate mortgage calculator to explore how your interest rate, payment, and principal balance on your ARM can change.

Most adjustable-rate mortgages have an introductory period where the rate of interest and monthly payments are fixed. After the initial introductory period the loan shifts from acting like a fixed-rate mortgage to behaving like an adjustable-rate mortgage, where rates are allowed to float or reset each year.

An ARM is also known as an adjustable rate loan, variable rate mortgage, or variable rate loan. Each lender decides how many points it will add to the index rate. It’s typically several percentage points. For example, if the Libor rate is 0.5 percent, the ARM rate could be anywhere from 2.5 percent to 3.5 percent.

When getting a mortgage, you'll have an opportunity to choose between two basic types of mortgage: a fixed rate mortgage or an adjustable rate mortgage, also.

That doesn’t sound so bad, but it can add up. Grandi offers an example of the homeowner who has a 5/1 ARM at 3 percent on a \$300,000 mortgage. That would mean you’re paying \$1,264.81 a month for the.