Mortgage Glossary

Adjustable-Rate Mortgage

A mortgage with an interest rate that can change after an initial fixed period. Your payment may go up or down when it adjusts.

What It Means

An adjustable-rate mortgage (ARM) starts with a fixed interest rate for a set number of years, then adjusts periodically based on a market index.

Common ARM structures:

5/1 ARM: Fixed for 5 years, adjusts annually after that
7/1 ARM: Fixed for 7 years, adjusts annually after that

ARMs often start with lower rates than fixed mortgages, which can save money in the short term. But once the fixed period ends, your rate — and payment — can rise significantly if market rates have gone up.

ARMs can make sense if you plan to sell or refinance before the fixed period ends.

Real-World Example

"A 5/1 ARM at 5.5% gives you lower payments for the first 5 years. If rates rise to 8% before year 6, your payment could jump by hundreds of dollars per month."

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Related Terms

Fixed-Rate Mortgage

Refinance

Interest

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A Loan Estimate is a standardized three-page document every lender must provide within three business days of your mortgage application, and knowing how to read each section can save you thousands and help you compare lenders fairly. This guide walks through every key number — from loan terms and projected payments to closing costs, APR, and the five-year comparison — so you know exactly what you're looking at before you sign.

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Definitions are for educational purposes only and do not constitute financial or legal advice.