Definition
A limit on how much an ARM's rate can change at each adjustment period or over the loan's lifetime. A common structure is 2/2/5, meaning 2% max at the first adjustment, 2% at each subsequent adjustment, and 5% over the life of the loan.
Related Rates & Terms Terms
The process of paying off a loan through regular monthly payments over time. Early in an amortizing loan, most of the payment covers interest. As the loan matures, more goes toward principal. A 30-year mortgage is fully amortized over 360 payments.
A financing arrangement where points or seller concessions are used to reduce the mortgage rate. A temporary buydown (like 3-2-1) lowers the rate for the first few years; a permanent buydown reduces it for the loan's full term.
The maximum loan amount eligible for purchase by Fannie Mae and Freddie Mac. For 2026, the baseline conforming limit is $806,500. Loans above this threshold are jumbo loans and follow different underwriting guidelines.
A benchmark interest rate used to calculate adjustments on an ARM. The most common index today is SOFR (Secured Overnight Financing Rate). Your ARM rate equals the current index plus your loan's fixed margin.
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