An adjustable-rate mortgage features an interest rate that adjusts periodically based on changes in a specified financial index. Initially, ARMs offer lower interest rates compared to fixed-rate mortgages, which can result in reduced monthly payments and lower overall borrowing costs. However, after an initial fixed-rate period, the interest rate—and consequently, the monthly payment—can fluctuate according to market conditions. This variability can lead to both potential savings and increased costs over the life of the loan, making ARMs suitable for borrowers who anticipate falling interest rates or who plan to move or refinance before the rate adjusts.