An adjustable-rate mortgage (ARM) is a type of home loan in which the interest rate is not fixed but varies over time, typically based on a predetermined index and a margin. The initial rate for an ARM is often lower than that of a fixed-rate mortgage, and it remains constant for a specified introductory period. After this period, the rate adjusts periodically, usually annually, based on fluctuations in the reference index.

Adjustable-rate mortgages are best suited for borrowers who expect their financial situation to improve over time, plan to sell or refinance their home before the initial fixed-rate period ends, or are willing to take on the risk of interest rate fluctuations in exchange for a potentially lower overall cost. ARMs can be advantageous when interest rates are predicted to decrease, as borrowers can benefit from lower monthly payments after the rate adjustment.

However, it’s essential to be aware that the interest rate and monthly payments may increase significantly when the adjustment period begins, depending on market conditions. Borrowers should carefully consider their financial stability, risk tolerance, and future plans before choosing an adjustable-rate mortgage.

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