Adjustable-Rate Mortgage

An adjustable-rate mortgage (ARM), typically begins with a low rate that is fixed for a specific amount of time and after that time period is up, adjusts to a rate which is most commonly determined by using either the Constant Maturity Treasury Index (CMT) or the London Interbank Offered Index (LIBOR). The drawback of this type of loan is that over the term of your loan the interest rate can either go up or down. This makes it difficult for the homeowner to create a monthly budget due to the fluctuation in their mortgage payment. More information on adjustable-rate mortgages can be found here in the Consumer Handbook on adjustable-rate mortgages.