Adjustable Rate Mortgage ARM

A type of mortgage financing that allows the lender to periodically make interest rate adjustments, with consequent payment recalculation. The adjustments are according to an independent market index, such as U.S. Treasury Bill yields or the Federal Reserve's Cost of Funds Index (COFI). Adjustments are normally made once each period, at the anniversary of the loan; for example, a 2-year ARM adjusts its interest rates every two years. The primary exception is ARM loans based on the Prime rate, which are adjusted sporadically by major banks. A more detailed discussion of the ARM loan is available in the "ARM Loans" article of the "Loan Programs" section.

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Real Estate 101

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