What is an Arm Loan?
The term adjustable-rate mortgage (ARM) refers to a home loan with a variable interest Rate. With an ARM, the initial interest rate is fixed for a period of time. After that, the interest rate applied on the outstanding balance resets periodically, at yearly or even monthly intervals.
ARMs are also called variable rate mortgages or floating mortgages. The interest rate for ARMs is reset based on a benchmark or index, plus an additional spread called an ARM margin. The London Interbank Offered Rate (Libor) was the typical index used in ARMs until October 2020, when it was replaced by the Secured Overnight Financing Rate (SOFR) in an effort to increase long-term liquidity.
