Adjustable-Rate Mortgage (ARM)
Also called: ARM, variable rate mortgage, tracker mortgage, 5/1 ARM
An ARM is a mortgage whose rate is fixed for an initial period and then resets periodically against an index. A 5/1 ARM is fixed for five years, then adjusts annually. You're paid a lower starting rate for accepting the reset risk, and caps limit how far the rate can move per adjustment and over the life of the loan. It suits a genuinely short horizon; it becomes dangerous when the plan is to refinance before reset and rates or your credit have moved against you.