What is an “ARM”?

An “ARM” is an “Adjustable Rate Mortgage”. Unlike a conventional mortgage, where the interest rate is fixed throughout the life of the loan, the interest rate for an ARM will adjust at fixed intervals throughout the life of the loan in proportion to increases or decreases in certain stated economic indicators. The benefit of ARM’s is they are usually at lower initial rates. The risk to the borrower is that rates may increase above what they would have been for a fixed rate mortgage.