Adjustable-rate mortgage, Glossary and Terms, Depository Institutions & Credit Unions

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"Adjustable-rate mortgage" - Depository Glossary Terms and Abbreviations

A type of mortgage that has an interest rate that changes periodically based on a standard rate index. Compared to a fixed-rate mortgage, where payments always remain the same, an adjustable-rate mortgage can result in higher or lower payments at various times depending on what the rate index is doing. The interest rate on an adjustable-rate mortgage typically adjusts on a yearly basis and there is usually a limit (called a "cap") on how high or low it may go annually. An advantage of an adjustable-rate mortgage is that it usually offers a low introductory rate that is fixed for the first few years of the loan.

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