What is a feature of an adjustable-rate mortgage?

An adjustable-rate mortgage (ARM) is characterized by interest rates that can fluctuate over time. This means that the initial interest rate is typically lower than that of a fixed-rate mortgage but can change at specified intervals based on market conditions or an index. This feature allows borrowers to potentially benefit from lower initial payments, but it also introduces the risk of higher payments if interest rates rise. As a result, understanding this aspect is crucial for borrowers considering ARMs, as it directly impacts long-term affordability and payment stability. The fluctuating interest rate is the distinguishing feature that sets ARMs apart from other loan types, which may offer fixed payment terms or guaranteed approval conditions.