Adjustable Rate Mortgage (ARM)

Intermediate 🏠 Real Estate

Definition

A mortgage with an interest rate that adjusts periodically, a financial arrangement that seems great until rates rise.

Example Usage

The 5/1 ARM started at 3.5% but jumped to 6.5% after five years, increasing his payment by $500 monthly.

Origin

Modern lending product from the 1980s

Fun Fact

ARMs precipitated the 2008 housing crisis when rates reset upward, leaving borrowers underwater.

Source: Mortgage lending practices

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