What is the implication of an adjustable-rate mortgage (ARM)?

The implication of an adjustable-rate mortgage (ARM) is that the interest rate can change at specified intervals based on market conditions. This structure allows the lender to adjust the interest rate periodically, which is typically linked to an index that reflects changes in the market. As a result, the payments on the loan can also vary over time, depending on these changes in interest rates. Borrowers may initially receive a lower rate compared to fixed-rate mortgages, but they must be prepared for potential increases in their monthly payments as the rate adjusts.

In contrast, a static interest rate over the life of the loan, which is characteristic of fixed-rate mortgages, would not apply to ARMs, nor would the idea of interest-only payments for the lifetime of the loan. Additionally, while some borrowers might find ARMs to be lower in initial payments compared to fixed-rate options, this does not guarantee a lower total cost, as future market fluctuations can lead to higher costs over the life of the loan.