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Adjustable Rate Mortgage (ARM)
A mortgage loan with a variable rate feature. The rate is usually tied to the prime rate, the best overnight lending rate that banks give each other, or to other specific market indices.
There is usually a low initial or "teaser" rate, and these loans are sold to younger buyers who can reasonably expect their salaries to rise.
ARM's contain restrictions on when the rate can rise or fall, and by how much (usually not more than 1% per year.)
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