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adjustable rate mortgage definition - Adjustable rate mortgage loans"With most ARM's, the interest rate and monthly payment change every year, every three years or every 5 years. However, some ARM's have more frequent rate and payment changes. The period between one rate change and the next is called the 'adjustment period'. A loan with an adjustment period of one year is called a one-year ARM, and the interest rate can change once every year.

When the ARM rate is adjusted, the lender (or servicer) finds the value of the Index, and adds a markup, known as a Margin. Generally, the total of your index plus margin equals the interest rate you'll be charged for the next fixed period, however long that might be.