An ARM is a mortgage where the interest rate changes at preset intervals, according to rising and falling interest rates and the economy in general. In most cases, the initial interest rate of an ARM is lower than a fixed rate mortgage.
Adjustable-rate loans, also known as variable-rate loans, usually offer a lower initial interest rate than fixed-rate loans. The interest rate fluctuates over the life of the loan based on market conditions, but the loan agreement generally sets maximum and minimum rates. When interest rates rise, generally so do your loan payments; and when interest rates fall, your monthly payments may be lowered.