Loan Glossary

Adjustable Rate Mortgage:

(ARM)A type of mortgage loan, usually lasting 30 years, where the interest rate fluctuates and depends on a particular preselected interest rate index. The advantage of this type of loan is that lenders typically offer initial discounts (teaser rates) on the interest rate index making the loans less expensive than a traditional fixed rate mortgage. In addition, the loan payment goes up and down depending on the actual financial conditions of the economy which can be an advantage if interest rates remain constant or decline during the life of the loan. The disadvantage of this type of loan is that your exact payment over time is unpredictable and can increase. Also called variable rate mortgage.