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, sub­ject 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.

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