Adjustable Rate Mortgage (ARM), Definition

Adjustable Rate Mortgage (ARM): An Adjustable Rate Mortgage, commonly referred to as an ARM loan is a mortgage in which the rate adjusts, based on some type of financial index. The borrower has no control over the index. However, all Adjustable Rate Mortgages have caps– both lifetime and yearly. For example, your ARM may have a 2% yearly cap and a 5% monthly cap.