- mortgage agreement between a financial institution in a real estate buyer stipulating predetermined adjustments of the interest rate at specific intervals
- mortgage payments are tied to some index outside the control of the bank or Savings and Loan institution such as the interest rate on us treasury bills or the average national mortgage rate adjustments are made regularly usually at intervals of 1 3 or 5 years
- in return for taking some of the risk of a rising interest rates borrowers get a lower rate at the beginning of the adjustable-rate mortgage than they would if they took out a fixed rate mortgage covering the same turn
- a homeowner who is worried about sharply Rising interest rates should probably choose a fixed rate mortgage whereas one who thinks rate will Rise modestly stay stable or fall should choose an adjustable rate mortgage critics of (arms) charge that these mortgages entice young homeowners to undertake potentially onerous commitments
- also called a variable rate mortgage vrm the arm should not be confused with the graduated payment mortgage which is issued at a fixed rate with monthly payments designed to increase as borrower income increases
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