Adjustable Rate Mortgage (ARM)

An adjustable rate mortgage is a contract that allows periodic changes of the interest rate involved in the payment of mortgage. This type of contract allows property buyers to benefit from a declining interest rate therefore lowering their payments. This lower rate is usually dictated by a central bank when it tries to expand the money supply and boost the economy. However, once central banks start to raise the nominal rate, mortgage payments also rise with it. A higher payment would potentially spell trouble for buyers who acquired the mortgage at a lower rate.