An adjustable rate mortgage is often referred to as an ARM and the basic premise is that the interest rate changes with the market which means the monthly payments can also change.
Most adjustable rate mortgages have a fixed rate period where the rate is set at a certain level and doesn’t change, then this is followed by a period where the rate changes regularly. The hook here is that this fixed rate period is typically set at an interest rate that is less than the current rate and more inviting than a fixed rate mortgage which is why it’s a popular way to go.
With the adjustable interest rate you never know if it’s going to go up or down, this is the risk that people who opt for an adjustable rate mortgage agree to. In some cases people with an ARM do quite well with their loans and in others the interest rate has been known to sky rocket and any early savings earned during the low fixed rate period are wiped out.
There are different adjustable rate mortgages out there and each one has its own benefits and downfalls so research each ARM option carefully before you fall for the early honeymoon period low interest rate.