An adjustable rate mortgage (ARM) is loan with an interest rate that adjusts over time based on the market. ARMs usually start with a lower interest rate but will increase after a specific term. Rates may change from time to time, usually in relation to an index (like the Secured Overnight Finance Rate). When the rates change, so do the monthly payments.
Borrowers interested in this type of mortgage should take into consideration the risk involved with an uncertain interest rate when budgeting for their home financing. That said, for anyone who isn’t expecting to stay in their home for the full life of their loan, this could be a great way to save money while planning for the future.