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    Finance & Mortgages

    Adjustable-Rate Mortgage (ARM)

    A mortgage whose interest rate changes over time based on an index plus a fixed margin, subject to rate caps.

    An adjustable-rate mortgage, or ARM, has an interest rate that changes at set intervals. The rate equals an index, which moves with the market, plus a margin, which is the lender's fixed markup. Rate caps limit how much the rate can rise each adjustment period and over the life of the loan.

    An ARM often starts with a lower introductory rate than a fixed-rate loan, then adjusts on a schedule.

    On the exam

    Rate equals index plus margin. The index is the market piece; the margin is the lender's fixed add-on.

    Exam trap

    The borrower controls neither the index nor the margin. Caps limit increases, but the rate can still rise.

    Tested in

    Residential Mortgages (9% of the exam)

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    This definition is Florida real estate exam-prep education, not legal, tax, or professional advice. Verify current rules against the official source before relying on them for a real transaction. Back to the full glossary.