An Adjustable Rate Mortgage (ARM) is a type of home loan where the interest rate can change over time. Initially, ARMs often start with a lower fixed rate for a set period, such as 5, 7, or 10 years. After this initial period, the rate adjusts periodically based on market conditions, which can lead to lower payments initially but potentially higher payments later. The adjustments are typically tied to a specific financial index, and the lender will add a margin to determine the new rate. Borrowers should be aware of the risks, as their monthly payments can increase significantly if interest rates rise.