Adjustable-Rate Mortgage

Definition

A mortgage with an interest rate that changes after an initial fixed period—basically, the bank's way of saying 'we got you started cheap, but wait until the teaser rate expires.'

Example Usage

Our 3/27 ARM had a 3% rate for three years before it adjusted to 7.5%, doubling our monthly payment.

Origin

Formalized as a mortgage product in the 1980s

Fun Fact

ARMs with initial 'teaser rates' were marketed aggressively in the pre-2008 housing boom as a way to qualify for bigger loans

Source: Mortgage lending terminology

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