An adjustable rate mortgage, commonly referred to as an ARM, is a type of mortgage loan where the interest rate can change periodically throughout the life of the loan.
Definitions
An adjustable rate mortgage is a type of mortgage loan where the interest rate can change periodically throughout the life of the loan. The interest rate is typically based on a benchmark index, such as the prime rate or the London Interbank Offered Rate (LIBOR), and can go up or down depending on changes in the index.
Origin
The adjustable rate mortgage was first introduced in the 1980s as a way to help people afford homes during a time of high interest rates. The idea was that borrowers could take advantage of lower interest rates when they were available, but would still have some protection against rising rates.
Meaning in different dictionaries
According to Merriam-Webster, an adjustable rate mortgage is “a mortgage having an interest rate which is usually initially lower than that of a mortgage with a fixed rate but is adjusted periodically according to the cost of funds to the lender.” The Oxford English Dictionary defines it as “a mortgage with an interest rate that can be adjusted periodically according to prevailing market conditions.”
Associations
Adjustable rate mortgages are often associated with risk, as borrowers may end up paying more in interest over the life of the loan if rates rise. However, they can also be a good option for borrowers who plan to sell or refinance their home before the rate adjusts.
Synonyms
Some synonyms for adjustable rate mortgage include ARM, variable rate mortgage, and floating rate mortgage.
Antonyms
The antonym of an adjustable rate mortgage would be a fixed rate mortgage, where the interest rate stays the same throughout the life of the loan.
The same root words
There are no other commonly used phrases or terms that use the same root words as adjustable rate mortgage.
Example Sentences
- “I decided to go with an adjustable rate mortgage because I plan to sell the house in a few years.”
- “The interest rate on my adjustable rate mortgage just went up, so I need to re-evaluate my budget.”
- “I wish I had gone with a fixed rate mortgage instead of an adjustable rate mortgage, because now my payments are much higher than I anticipated.”