200012 Lecture Notes - Lecture 18: Libor, Property Law, United States Treasury Security
3 May 2019
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Document Summary
An adjustable-rate mortgage (arm) is a type of mortgage in which the interest rate applied on the outstanding balance varies throughout the life of the loan. Normally, the initial interest rate is fixed for a period of time, after which it resets periodically, often every year or even monthly. The interest rate resets based on a benchmark or index plus an additional spread, called an arm margin. Also called a variable-rate or floating rate mortgage, arms take a number of different forms. At the close of the fixed-rate period, arm interest rates increase or decrease based on an index plus a set margin. In most cases, mortgages are tied to one of three indexes: the maturity yield on one-year treasury bills, the 11th district cost of funds index, or the london interbank offered rate. Although the index rate can change, the margin stays the same.
