Glossary

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Adjustment Period
An adjustment period refers to how often interest rate adjustments happen in an adjustable rate mortgage. Most adjustment periods are one, three, or five years in length. However, some loans adjust at different intervals. Many lenders advertise an adjustable rate mortgage (ARM) with two numbers in front of it. An example of this is a 5/1 ARM. The first number indicates how long the initial interest rate will remain in effect. The second number indicates how often, after the first period, the interest rate can adjust. In the 5/1 ARM example, the 5 indicates that the first interest rate adjustment will be made at the beginning of year 5 of the mortgage. The 1 indicates that after that first adjustment, the adjustment period will be one year. Most lenders change interest rates based on a specific index such as Treasury securities or national average cost of funds index.