Business and Personal Finance Dictionary

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• ADJUSTABLE-RATE MORTGAGES
  
  The following information has been adapted from the "Consumer Handbook on Adjustable Rate Mortgages," published by the Federal Reserve Board and Office of Thrift Supervision. An adjustable rate mortgage (ARM) is a mortgage for which the interest rate is not fixed, but changes during the life of the loan in line with movements in an index rate. Such loans are also referred to as adjustable mortgage loans (AMLs) or variable-rate mortgages (VRMs). Lenders generally charge lower initial interest rates for ARMs than for fixed-rate mortgages. The lower rate may provide you with lower cash outlays in the first year of the loan and in the years thereafter, should rates remain relatively stable or decrease. Additionally, you may be able to qualify for a greater amount under an ARM program than a fixed-rate program. Rates on several ARMs have dropped in recent years. Nevertheless, interest rates may increase, leading to higher monthly payments in the future. You face a trade-off; you obtain a lower rate with an ARM in exchange for assuming more risk. The following terms will help you understand some of the important concepts involved with ARMs.
  
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