Explore commonly used personal finance terms.
An Adjustable Rate Mortgage (ARM) is a home loan with an interest rate that may vary periodically, typically after an initial fixed-rate period. The rate adjustments are based on a benchmark interest rate or index. ARM loans usually offer lower initial interest rates compared to fixed-rate mortgages, making them appealing to borrowers who plan to sell or refinance before the adjustment period. However, the variable rates can result in higher payments if interest rates rise, posing risks for long-term affordability.
