# Adjustable-Rate Mortgage (ARM)

*Borrowing & Credit — Finicade finance glossary*

An ARM is a mortgage whose rate is fixed for an initial period and then resets periodically against an index. A 5/1 ARM is fixed for five years, then adjusts annually. You're paid a lower starting rate for accepting the reset risk, and caps limit how far the rate can move per adjustment and over the life of the loan. It suits a genuinely short horizon; it becomes dangerous when the plan is to refinance before reset and rates or your credit have moved against you.

**Also known as:** ARM, variable rate mortgage, tracker mortgage, 5/1 ARM

**Related terms:** [Fixed-Rate Mortgage](https://finicade.com/glossary/fixed-rate-mortgage), [Mortgage](https://finicade.com/glossary/mortgage), [Interest Rate](https://finicade.com/glossary/interest-rate), [Refinancing](https://finicade.com/glossary/refinancing), [Interest Rate Risk](https://finicade.com/glossary/interest-rate-risk)

Source: https://finicade.com/glossary/adjustable-rate-mortgage