An Adjustable Rate Mortgage (ARM) is a type of home loan with an interest rate that changes periodically, based on a financial index or market conditions. Unlike a fixed-rate mortgage, which has a constant interest rate for the loan's term, an ARM usually starts with a lower initial rate, which can make monthly payments more affordable early on.
Typically, an ARM will have an initial fixed-rate period (e.g., 5, 7, or 10 years) before the rate begins adjusting at set intervals, such as annually. The rate adjustments are based on an index plus a margin, with caps on how much it can increase or decrease at each adjustment and over the life of the loan.
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