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Loanfactz Definitions

Glossary of Legal Terms, Loan Terms and Home Construction, Repair and Maintenance Definitions. Some words have more than one meaning. Only those meanings relating to this site will be used.

All of A

Adjustable Rate Mortgage (ARM)

Adjustable Rate Mortgage (ARM) is a type of mortgage rate loan whose * interest rate changes periodically up or down, usually once or twice a year. Also known as a variable rate loan, an adjustable rate mortgage (ARM) usually offers a lower initial interest rate than * fixed rate mortgage loans.

The interest rate can change at specified time periods based on changes in an interest rate index that reflects current finance market conditions, such as the * London Interbank Offered Rate (LIBOR) index or the Treasury index. The ARM promissory note states maximum and minimum rates. When the interest rate on an ARM increases, your monthly payments will increase and when the interest rate on an ARM decreases, your monthly payments will be lower. Most ARMs have * caps.

Adjustable rate mortgage (ARM) loans are covered by regulations that require, at a minimum, disclosure of the circumstances under which the rate may increase, any limitations on the increase, the effects of an increase and an example of the payment terms that would result from an increase.

Glossary For This Page
(In Alphabetical Order)

* Cap
A limit on the amount the interest rate or monthly payment can increase in an adjustable rate mortgage (ARM).

* Fixed Rate Mortgage
A home mortgage loan in which the interest rate does not change during the entire term of the loan.

* Interest Rate
The percentage of a sum of money charged to the borrower (you) by the lender (a bank, or other financial institution) for borrowing the lender's money. Interest rates change because of the market conditions.

* London Interbank Offered Rate (LIBOR)
The interest rate that major international banks in London charge to lend dollars to one another.

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