(StatePoint) An adjustable-rate mortgage (ARM) is often discussed as an option to help lower initial costs and increase flexibility, particularly in a high-cost housing market. However, it’s important to understand how these loans work, their potential risks, and strategies for managing adjustments over time.

ARMs 101

An ARM is a loan with an interest rate that will change throughout the life of the mortgage. In contrast, a fixed-rate mortgage has a fixed interest rate that is set when you take out the loan and does not change. In contrast to the stability of fixed-rate mortgages, with an ARM, your monthly payments may go up or down over time.

ARMs have two distinct periods:

The initial period: This period lasts between three to 10 years after you receive your loan, during which

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