What does the adjustment period refer to in an ARM?

The adjustment period in an Adjustable Rate Mortgage (ARM) specifically refers to the duration between adjustment dates when the interest rate or monthly payment amount can change. In ARMs, interest rates are typically fixed for an initial period and then adjust periodically based on market conditions. This adjustment period is crucial for borrowers to understand because it determines how often their payments can change, which, in turn, affects their budgeting and financial planning.

Understanding the adjustment period helps borrowers anticipate when to expect changes in their loan payments and how to prepare for potential increases or decreases. The frequency of these adjustments can vary widely—some loans may adjust annually, while others could adjust every six months or even monthly. This variability in adjustment intervals emphasizes the importance of knowing the terms set forth in their loan agreement.