An adjustable-rate mortgage (ARM) is a type of home loan where the interest rate is fixed for an initial period—typically 5, 7, or 10 years—before it adjusts periodically based on market conditions. After the initial fixed-rate period, the rate can go up or down depending on changes in the specified financial index (such as the LIBOR or SOFR) plus a set margin. ARMs are often appealing because they start with lower interest rates compared to fixed-rate mortgages, potentially offering significant savings during the initial period.

Adjustable-rate mortgages can be a smart choice for buyers who plan to move or refinance before the rate adjusts or for those comfortable with some level of risk in exchange for lower initial payments. However, because rates can increase after the fixed period, it’s essential to understand the loan’s terms, including adjustment caps and potential rate changes over time. Working with an experienced lender will help you evaluate whether an ARM is the best fit for your financial goals and future plans.