Fixed vs. Adjustable-Rate Guide glossary
Key terms
In brief
These terms explain how adjustable-rate mortgages work, each with a primary source.
Last reviewed against the primary sources listed below.
- Index
- The market benchmark an ARM's rate follows after the fixed period. Source: CFPB: For an ARM, what are the index and margin, and how do they work?
- Margin
- The fixed amount added to the index to set your new rate. Source: CFPB: Fixed-rate vs adjustable-rate mortgages
- Rate caps
- Limits on how much the rate can change at each adjustment and over the loan. Source: CFPB: What are rate caps with an ARM, and how do they work?
- Conversion option
- A feature letting some ARMs switch to a fixed rate for a fee. Source: CFPB: Consumer Handbook on Adjustable-Rate Mortgages (CHARM booklet)