When is Adjustable-Rate Mortgage used?

Choosing a rate that can rise or fall with the market instead of a fixed payment. Taking a lower starting rate when you expect to move or refinance before it adjusts.

Can you give examples of Adjustable-Rate Mortgage?

A buyer takes an adjustable-rate mortgage with a low intro rate, then refinances before the first adjustment. Rates climb after closing and the borrower's payment increases at the next adjustment period.

Real Estate Term

Adjustable-Rate Mortgage (ARM)

A mortgage with an interest rate that changes periodically based on market conditions.

What is Adjustable-Rate Mortgage?

An adjustable-rate mortgage (ARM) is a home loan whose interest rate changes at set intervals based on a benchmark or the lender's prime rate, so your payment can move up or down over time. It usually starts with a lower introductory rate than a comparable fixed-rate mortgage, which can make it cheaper at first but riskier if rates climb. Borrowers often choose an ARM when they expect to sell or refinance before the rate adjusts, or when they believe rates will fall.