A home loan whose interest rate can change over time, unlike a fixed-rate mortgage.
Most US homebuyers choose a fixed-rate mortgage, where the interest rate stays the same for the life of the loan. An adjustable-rate mortgage instead starts with a lower rate for a set period, often five or seven years, then resets periodically based on broader interest rates. That can work out well if rates fall or stay flat, but it means monthly payments can jump sharply if rates have risen by the time the loan resets, which is exactly what caught many borrowers off guard during past periods of rising rates.
Part of the Open Bell Glossary — plain-English explanations of the terms that come up on the show. Browse every term.