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Adjustable-Rate Mortgage (ARM)

Here the interest rate may vary over the course of the loan as the economy fluctuates. At set dates, the lender adjusts the rate. An example is a 3/1-year ARM that locks the rate for the first three years.

Usually, ARMs carry two caps—one limits how much the lender can raise the rate at each adjustment, and one limits how much the rate can be raised over the life of the loan.
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