Mortgage Glossary - All About ARM's
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Payment Adjustment Interval
The period between payment changes on an ARM, which may or may not be the same as the interest rate adjustment period. Loans on which the payment adjusts less frequently than the rate may generate negative amortization.
Payment Change Date
The date when a new monthly payment amount takes effect on an adjustable rate mortgage (ARM) or a graduated-payment mortgage (GPM). Generally, the payment change date occurs in the month immediately after the interest rate adjustment date.
Payment Decrease Cap
The maximum percentage decrease in the payment on an ARM at a payment adjustment date.
Payment Increase Cap
The maximum percentage increase in the payment on an ARM at a payment adjustment date.
Payment Shock
A very large increase in the payment on an ARM that may surprise the borrower.
Periodic Payment Cap
For an ARM where the interest rate and the minimum payment amount fluctuate independently of one another, this is a limit on the amount that payments can increase or decrease during any one adjustment period.
Periodic Rate Cap
For an ARM, a limit on the amount that the interest rate can increase or decrease during any one adjustment period, regardless of how high or low the index might be.
Prime Rate
The interest rate that banks charge to their preferred customers. Changes in the prime rate are widely publicized in the news media and are used as the indexes in some ARMs, especially home equity lines of credit. Changes in the prime rate do not directly affect other types of mortgages, but the same factors that influence the prime rate also affect the interest rates of mortgage loans.
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