Adjustable-Rate Mortgage (ARM)
Here the interest rate may vary over the course of the
loan as the economy fluctuates. At set dates, the lender
adjusts the rate. An example is a 3/1-year ARM that locks
the rate for the first three years.
Usually, ARMs carry two caps—one limits how much
the lender can raise the rate at each adjustment, and
one limits how much the rate can be raised over the life
of the loan.