An Adjustable-Rate Mortgage (ARM) is a type of home loan where the interest rate can change over time, usually in response to changes in a financial index (like the 1-Year Treasury rate or SOFR).   ⸻   🏠 Key Features of an ARM:   1. Introductory Fixed Rate Period • You get a low fixed interest rate for a set number of years (commonly 3, 5, 7, or 10). • Example: A 5/1 ARM means your rate is fixed for the first 5 years, then adjusts once per year afterward.   2. Adjustment Period • After the fixed period, the interest rate adjusts periodically (usually annually). • The new rate is based on: • A benchmark index (e.g., SOFR or LIBOR) • Plus a margin (set by the lender)   3. Rate Caps • Initial cap: Limits how much the rate can go up at the first adjustment. • Periodic cap: Limits increases at each adjustment. • Lifetime cap: Maximum the rate can rise over the life of the loan.   ⸻   📊 Example: 5/1 ARM • First 5 years: Fixed at 4.25% • After year 5: Adjusts annually • Let’s say the cap is 2/2/5 (initial/periodic/lifetime) • Year 6 rate could jump to 6.25% max • Later years could go up 2% per year, but never more than 5% above the original rate   ⸻   ✅ Pros of an ARM: • Lower initial rate = lower monthly payments early on • Good if you plan to move or refinance before the adjustment kicks in • May qualify you for more home upfront   ⚠️ Cons of an ARM: • Rates can rise—your monthly payment may go up significantly • Less predictable than a fixed-rate mortgage • Riskier in a rising interest rate environment   ⸻   💡 When Is an ARM a Good Choice? • You’re only staying in the home for a few years • You expect interest rates to stay the same or drop • You want lower upfront payments and can handle possible increases later

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