Skip to content

Adjustable Rate Mortgages

Free Online Calculator

An adjustable-rate mortgage (ARM), or tracker mortgage is a mortgage loan with the interest rate.It is on the note periodically adjusted based on an index. Which reflects the cost to the lender of borrowing on the credit markets. Adjustable-rate mortgage loan may be offered at the lender’s standard variable rate/base rate. There may be a direct and legally defined link to the underlying index. But where the lender offers no specific link to the underlying market or index, the rate can be changed at the lender’s discretion. The term “variable-rate mortgage” is most common outside the United States, whilst in the United States. Adjustable-rate mortgage is most common, and implies a mortgage regulated by the Federal government, with caps on charges. In many countries, adjustable rate mortgages are the norm, and in such places, may simply be referred to as mortgages.

The period between rate changes is called the adjustment period. For example, a loan with an adjustment period of 1 year is called a 1-year ARM, and the interest rate and payment can change once every year.A loan with a 3-year adjustment period is called a 3-year ARM.Adjustable rates transfer part of the interest rate risk from the lender to the borrower. They can be used where unpredictable interest rates make fixed rate loans difficult to obtain. The borrower benefits if the interest rate falls but loses if the interest rate increases. The borrower benefits from reduced margins to the underlying cost of borrowing compared to fixed or capped rate mortgages.

adjustable rate mortgage

Translate »