Adjustable-Rate Mortgages (ARMs)

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An adjustable-rate mortgage (ARM) is a loan where the interest rate remains fixed during the initial period, then shifts into the adjustment period where the interest rate increases or decreases depending on current market changes. There are three types of ARMs: hybrid, interest-only, and payment-option. For example, a 7/1 ARM has a fixed interest rate for the first seven years and then adjusts annually for the remaining length of the loan.