Adjustable Rate Mortgage (ARM)
Typically, ARMs are expressed as two numbers. In most cases, the first number indicates the length of time the fixed-rate is applied to the loan, but there is no set formula defining what the second number indicates. For example, a 2/28 ARM and a 3/27 ARM feature a fixed rate for two or three years, respectively, followed by a floating rate for the remaining 28 or 27 years. In contrast, a 5/1 ARM boasts a fixed rate for five years, followed by a variable rate that adjusts every year (indicated by the one). Similarly, a 5/5 ARM starts with a fixed rate for five years and then adjusts every five years. Contrary to that formula, a 5/6 ARM has a fixed rate for five years and then adjusts every six months.
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