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ARM (Adjustable Rate Mortgage)
A mortgage with an interest rate that adjusts periodically based on a market index after an initial fixed period.
Definition
An Adjustable Rate Mortgage starts with a fixed interest rate for an initial period (commonly 5, 7, or 10 years) and then adjusts periodically based on a benchmark index plus a margin. For example, a 5/6 ARM is fixed for 5 years and adjusts every 6 months thereafter. ARMs typically offer lower initial rates than fixed-rate loans, which improves early cash flow. Rate caps limit how much the rate can increase per adjustment and over the life of the loan. Investors who plan to sell or refinance before the adjustment period may benefit from the lower initial rate.
How This Relates to DSCR Loans
DSCR ARMs can offer significantly lower initial rates than fixed products. If your investment horizon is shorter than the fixed period, an ARM can save thousands in interest.
Related Terms
Fixed Rate Mortgage
A mortgage where the interest rate remains the same for the entire loan term.
Interest Rate
The percentage charged by a lender for borrowing money, applied to the outstanding loan balance.
Interest-Only
A loan payment structure where you pay only interest for an initial period, with no principal reduction.
Rate Lock
A lender's guarantee that a specific interest rate and pricing will be held for a set period.
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