Discretionary ARM

Discretionary ARM

An ARM on which the lender has the right to change the interest rate at any time,for any reason,by any amount,sub- ject only to a requirement that the borrower be notified in advance.

The discretionary ARM is at the opposite pole from Indexed ARMs on which rate adjustments are completely rule-based.

Discretionary ARMs were long the standard mortgage in the U.K. and in other English-speaking countries that imported it from the U.K., such as India and South Africa. They never caught on in the U.S., where the indexed ARM prevails.

References in periodicals archive ?
discretionary ARM is priced as a spread to the average retail cost of funds--an implicit index that is not as volatile as short-term money-market rates.