What is an adjustable-rate mortgage?

An adjustable-rate mortgage, also known as an ARM, is a loan where the interest rate will change periodically. Generally, this type of loan offers a lower initial interest rate than most fixed-rate loans. The trade-off is that the interest rate can change periodically, usually in relation to an index, and the monthly payment will go up or down accordingly. While the advantage of the lower payment at the beginning of the loan, exists, you should weigh the risk that an increase in interest rates would lead to higher monthly payments in the future.

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