adjustable-rate mortgage (ARM)

A 5/1 ARM is an adjustable-rate mortgage (ARM) that has an initial interest rate for five years, and thereafter has an adjustment interval of one year. The adjustment is based on (or "indexed to") another rate -- often the yield on a Treasury note. Someone taking out a $165,000.00 5/1 ARM at the current average would pay $993.51 a month for the first five years of the loan. The rate would change annually thereafter.

Nationally, the highest rate on a 5/1 ARM was 7.875 percent. The lowest rate was 4.625 percent. Six months ago, the average rate in the U.S. was 5.50 percent.