Definition of "Discretionary ARM"

Nancy Marquez GRI, SRES real estate agent

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Nancy Marquez GRI, SRESelite badge icon

Coldwell Banker Residential Brokerages

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 ARM's on which rate adjustments are completely rule-based. Discretionary ARM's 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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