An Adjusted Rate Mortgage (ARM) is a loan where the interest rate may vary for the life of the loan. This opposed to Fixed-Rate Mortgage (FRM), where the interest rate is locked for the entire term.

ARMs rates are usually responsive to changes in the ten-year T-Bill rate and prime rate. Borrowers enter adjusted rate mortgages primarily to keep the interest rate they pay on the mortgage in line with the market rate.

ARMs often start with better rates than conventional fixed rate mortgages, in order to compensate the borrower for the additional risk that future interest rate fluctuations will create.