Adjustable Rate Mortgage (ARM)

An adjustable-rate mortgage (ARM) is different from a fixed rate mortgage in many different ways. The most important difference is with a fixed-rate mortgage, the interest rate stays the same during the life of the loan. With an adjustable-rate mortgage, the interest rate changes periodically, usually in relation to an index, and payments may go up or down when the index goes up or down. Among the most common indexes are on 1-year constant-maturity Treasury (CMT) securities, the Cost of Funds Index (COFI), and the London Interbank Offered Rate (LIBOR).