Adjustable Rate Mortgage (ARM)

Unlike a fixed-rate amortized loan, an Adjustable Rate Mortgage (ARM) has an interest rate that changes periodically based on economic conditions. Typically, an ARM starts with a lower initial interest rate than a fixed-rate mortgage, making it attractive to buyers who plan to move after a few years or who expect their income to rise. However, after the initial fixed period ends, the rate—and therefore the monthly payment—can rise or fall.