What is an Adjustable-rate mortgage (ARM)?
After an introductory period that could be 3, 5, 7, or 10 years, the interest rate on an adjustable-rate mortgage will be adjusted by the lender in accordance with current interest rates and your loan agreement.
For instance, a 5/1 ARM will have a fixed rate for the first five years, then the rate will vary based on a variety of factors. Your lender will explain the details before you accept the loan.
Typically, the interest rate on ARMs are lower for the fixed period which makes your payments more affordable during that period. However, the interest rate will generally go up along with your monthly payment after the rate is adjusted.
Homeowners consider ARMs riskier as you can’t predict what mortgage rates will be in the future.