· Adjustment period: The length of time between interest rate changes. Example: one year ARM-interest changes annually.
· Cap: The limit on how much an interest rate or monthly payment can change at each adjustment or over the life of the loan.
· Conversion clause: A provision in some loans that enables you to change an ARM to a fixed rate loan, usually after the first adjustment period. This may require additionally fees.
· Index: A measure of interest rate changes used to determine changes in the loan’s interest rate over the term of the loan.
· Margin: The number of percentage points a lender adds to the index rate to calculate the ARM’s interest rate at each adjustment.