Simple English definitions for legal terms
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ARM stands for adjustable-rate mortgage. It's a type of home loan where the interest rate is fixed for a certain period of time, but then it can change based on a benchmark or index rate. This means that the interest rate can go up or down during the life of the loan.
ARM stands for ‘adjustable-rate mortgage’, which is a type of home loan that has a fixed interest rate for an initial period of time, then after a certain point the rate changes, which means it is no longer a fixed interest rate, but rather the interest fluctuates during the life of the loan, based on the change or movement in the index rate or specific benchmark.
For example, let's say you take out an ARM with a fixed interest rate of 3% for the first five years. After that, the interest rate can change every year based on the market index. If the market index goes up, your interest rate will go up too, which means your monthly mortgage payment will increase. If the market index goes down, your interest rate will go down too, which means your monthly mortgage payment will decrease.
ARMs can be risky because you don't know how much your monthly mortgage payment will be in the future. However, they can also be beneficial if you plan to sell your home before the fixed interest rate period ends or if you expect your income to increase in the future.