But with an ARM, the interest rate changes periodically, usually in relation to an index, and payments may go up or down accordingly.
Lenders generally charge lower initial interest rates for ARMs than for fixed-rate mortgages.
This makes the ARM easier on your pocketbook at first than a fixed-rate mortgage for the same amount. It also means that you might qualify for a larger loan because lenders sometimes make this decision on the basis of your current income and the first year's payments. Against these advantages, you have to weigh the risk that an increase in interest rates would lead to higher monthly payments in the future. However, some ARMs have more frequent interest and payment changes. The period between one rate change and the next is called the adjustment period.