What does ARM stand for in mortgage terminology?

In mortgage terminology, ARM stands for Adjustable-rate Mortgage. This type of mortgage has an interest rate that can change periodically, typically in relation to an index that reflects the cost to the lender of borrowing on the credit markets. When the interest rate changes, the monthly payment amount may increase or decrease, which can significantly impact the borrower's financial situation over time.

Adjustable-rate mortgages typically have an initial fixed interest rate period, often lower than that of fixed-rate mortgages, which then adjusts at predetermined intervals—such as annually—after the initial fixed period ends. As these rates change, it helps to reflect the fluctuating market conditions, providing both advantages and risks to homeowners.

The other terms presented do not accurately represent the acronym ARM in mortgage terminology, and thus are not relevant to the concept of adjustable-rate mortgages. Understanding ARMs is crucial for potential homebuyers, as these loans can be more affordable upfront but come with the risk of higher payments in the future if the interest rates rise.