Adjustable mortgage loan (AML)

An adjustable mortgage loan or AML is a real estate loan in which the interest rates and payment installment amounts may be adjusted or changed (within certain limits) over the term of the loan. Examples of adjustable mortgage loans are the adjustable rate mortgage (ARM) and the graduated payment mortgage.

The adjustable rate mortgage and adjustable mortgage loan are often confused with each other probably because of the similarity in the terms used. The adjustable rate mortgage falls under adjustable mortgage loans because the interest rate of this type of loan is adjusted periodically to reflect market changes. The adjustable rate mortgage is also called the variable rate mortgage. Note though that it still differs from the adjustable mortgage loan because the installment amounts may or may not change. If the interest rate goes up while the payment amount stays the same, the borrower will have to pay for the loan for a longer time.

The other kind of adjustable mortgage loan, called graduated payment mortgage, has an interest rate that stays the same. The factor that varies with graduated payment mortgage is the payment amount. Payment amounts can be set to change periodically from the very start (from low initial installment amounts to higher after a certain period and vice versa) or may be set by the customer.