An adjustable-rate mortgage (ARM) starts with a fixed interest rate for an introductory period, then adjusts at set intervals based on a market index plus a fixed margin. A "5/6 ARM," for example, holds its rate for five years, then can reset every six months.
The draw is the intro rate, which is often lower than a comparable fixed-rate mortgage. The risk is what comes after: if rates rise, so does your payment. Caps limit how far the rate can move — at the first adjustment, at each later adjustment, and over the life of the loan. Always ask for all three numbers before signing.
ARMs can make sense if you expect to sell or refinance before the fixed period ends, so you enjoy the discount without ever facing an adjustment. If you plan to stay put for the long haul, a fixed rate buys predictability. For a deeper comparison, see ARM vs. fixed-rate, or model both payments with the mortgage calculator.