Adjustable-rate mortgage (ARM)
A mortgage with a fixed rate for an initial period, then a rate that resets at set intervals based on an index plus a margin. Caps limit how much it can change. Payments can rise after the fixed period.
Also called: ARM, variable rate mortgage, 5/1 ARM, 7/1 ARM
Related terms
A mortgage whose interest rate stays the same for the life of the loan, so principal and interest payments never change. Taxes and insurance in the payment can still go up.
The percentage a lender charges to borrow money, used to figure the interest part of each payment. It does not include fees, which is why the APR is often higher.
Replacing your current mortgage with a new one, usually to get a lower rate, change the term, or drop mortgage insurance. It comes with new closing costs, so the savings need to outweigh them.
The yearly cost of a loan including the interest rate plus certain fees, such as points and origination charges. It is usually higher than the interest rate and makes it easier to compare offers from different lenders.
A loan where payments cover only interest for a set period, so the balance does not go down. After that period, payments jump to include principal or the balance comes due.