Indexed ARMs

Indexed ARMs

Adjustable rate mortgages on which the interest rate is mechanically determined based on the value of an interest rate index.

Indexed ARMs are distinguished from Discretionary ARMs, in that the first provides the lender with zero discretion in setting future interest rates, while the latter provides the lender with complete discretion. All ARMs discussed in Adjustable Rate Mortgage (ARM) are indexed ARMs, which is the only kind used in the U.S.