Adjustable Rate Mortgage (ARM) Legal Meaning and Definition

Here is a simplified definition of the legal term Adjustable Rate Mortgage (ARM).

Adjustable Rate Mortgage (ARM) (noun): Refers to a type of mortgage loan where the interest rate changes over time. This change causes the monthly repayment amount to increase or decrease accordingly. The rate variability is based on market conditions, discouraging a fixed-rate structure. This setup is beneficial for the borrower when interest rates drop but can be costly if interest rates rise. Often used in unpredictable interest rate environments. Known interchangeably as a variable rate mortgage or re-negotiable rate mortgage.