What is Adjustable-Rate Mortgage (ARM)?
An adjustable-rate mortgage starts with a fixed rate for an introductory period, then adjusts up or down periodically based on a market index. ARMs are written as numbers like “5/6” or “7/1,” where the first number is the fixed years and the second is how often the rate changes afterward. They offer a lower starting rate but carry the risk of higher payments later.
Example: A buyer takes a 7/1 ARM with a low rate fixed for seven years, planning to sell or refinance before the rate begins adjusting annually.