An adjustable-rate mortgage (ARM) is a type of mortgage in which the interest rate applied on the outstanding balance varies throughout the life of the loan. Normally, the initial interest rate is fixed for a period of time, after which it resets periodically, often every year or even monthly. The interest rate resets based on a benchmark or index plus an additional spread, called an ARM margin.
ARM can be used to purchase or refinance and are popular because of the upfront savings they offer. The interest rate adjusts to the market after a set period according to the term; when the fixed period ends and your rate adjusts, interest rates changes are capped.