Adjustable-Rate Mortgage
An adjustable-rate mortgage is a type of mortgage where the interest rate can change over time, and as a result, the payment amount may also change. The rate is typically tied to a benchmark rate set by the lender and adjusts periodically based on market conditions.
Unlike fixed-rate mortgages, adjustable-rate mortgages expose borrowers to interest rate movements. When rates rise, payments may increase. When rates fall, payments may decrease, depending on how the mortgage is structured.
Why this matters:
Many borrowers focus on the initial rate without fully considering how payment changes could affect their budget. Understanding how adjustable-rate mortgages work helps borrowers assess risk, plan for potential rate increases, and decide whether payment flexibility is worth the uncertainty.
Related Mortgage Terms
Often confused with:
Variable-Rate Mortgage — Both can change with prime, but payments may behave differently.
Closely related:
Prime Rate — Many adjustable/variable mortgages move with prime.
Interest Rate — The underlying driver of payment changes.
Next step:
Variable-Rate Mortgage — Understand the most common “variable” setup borrowers choose.