While the name of this loan does tell you that there is a likelihood for a change in interest rate, there are several things you should know about Adjustable Rate Mortgages (ARMs) when you're deciding on the mortgage loan type that's right for you. There are several different types of ARM loans with varied loan terms that may make this type of loan a good choice for you.

 Advantages of an ARM include:

• A lower monthly payment in the early years of the loan providing you with considerable interest savings over a fixed-rate loan.
• A low interest rate that's locked in for the first few years of the loan so you'll know what to budget each month. And, limits on how much that interest rate can change over time, so you're able to plan for changes in your interest rate. For example, with a 3/1 ARM, the interest rate is set for the first three years and then adjusts annually based on market changes. That interest rate could go up or down based on an established index.*
• The lower initial interest rate, may allow you to qualify for a higher loan amount so you can purchase the home you really want.

An Adjustable Rate Mortgage may be a good choice if you:

• Want to maximize your buying power.
• Want lower payments during the first few years you are in your home.
• Plan to stay in your home less than 10 years.
• Plan to pay off your mortgage within the next 10 years.
• Expect your income to increase significantly in the coming years or you will pay off other loans during this time period. 

But, remember:
The adjustable interest rate on an ARM is determined by interest rate trends, so if interest rates are on the rise, your loan rate and monthly mortgage payment will also increase after the fixed rate period of the loan.

* The ARM index is typically the One-Year U.S. Treasury Bill, adjusted to a constant maturity (CMT).