Mortgage Glossary - All About ARM's
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Rate/Point Options
All the combinations of interest rate and points that are offered on a particular program. On an ARM, rates and points may also vary with the margin and interest rate ceiling.
Recast Payment
Raising the mortgage payment to the fully amortizing payment. Periodic recasts are sometimes used on ARMs in lieu of negative amortization caps.
Renegotiable Rate Mortgage
A loan in which the interest rate is adjusted periodically. See adjustable rate mortgage.
Treasury Index
An index that is used to determine interest rate changes for certain adjustable rate mortgage (ARM) plans. It is based on the results of auctions that the U.S. Treasury holds for its Treasury bills and securities or is derived from the U.S. Treasury's daily yield curve, which is based on the closing market bid yields on actively traded Treasury securities in the over-the-counter market.
Two-Step Mortgage
An adjustable rate mortgage (ARM) that has one interest rate for the first five or seven years of its mortgage term and a different interest rate for the remainder of the amortization term.
Variable Rate Mortgage
See Adjustable Rate Mortgage.
Worst-Case Scenario.
The assumption that the index to which the rate on an ARM is tied rises to 100% in the second month and remains there. The resulting rise in the interest rate will depend on the interest rate increase cap and the interest rate ceiling.
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