A seven year ARM loan, or Adjustable Rate Mortgage starts out
for 7 years with a fixed rate that does not change. Then, the rate
will become variable and change every month, or every six or 12
months. The variable rate is based on a mortgage index like LIBOR,
CMT, T-Bill or COFI, which are the most common, and a margin. The
margin is added to the index, then usually rounded to the nearest
1/8th (one eighth) of a percentage point. All the rules on how the
interest rate changes are written into an Adjustable Rate Mortgage
Note or Adjustable Rate Rider.