What is an adjustable rate mortgage (ARM)?

An adjustable rate mortgage (ARM) is accurately described as a mortgage with an interest rate that can change at specified times. This means that the interest rate is initially set at a lower fixed rate for a certain period, after which it will periodically adjust based on changes in a specified benchmark or index. These adjustments can result in lower initial payments compared to fixed-rate mortgages, but borrowers should be aware that the payments can increase or decrease over time, depending on market conditions.

The other definitions do not fit the characteristics of an ARM. A fixed-rate mortgage maintains the same interest rate throughout the life of the loan, which is not the case for an ARM. An interest-free mortgage is not a standard product offered in the marketplace and does not accurately represent typical lending practices. Similarly, the requirement of a down payment is not a unique feature of ARMs, as many mortgages, whether fixed or adjustable, typically expect some form of down payment from the borrower.