Adjustable Rate Mortgage

Adjustable-rate mortgage, or variable rate mortgage, is a mortgage where the interest rate will adjust to match the current market after an initial fixed rate. For example, a 5/1 ARM’s interest rate will start adjusting after a five-year period of a fixed rate.

Pros:

1. Payments decline when market rates fall
2. Low initial rate, compared to fixed rate

Cons:

1. Payments increase when rates rise
2. No stability; payments change over time