An adjustable-rate mortgage (ARM) is a type of home financing where the interest rate varies over the loan's term. Initially, ARMs offer a lower interest rate compared to fixed-rate mortgages, making them attractive for short-term savings. The rate, however, is subject to change based on a predetermined index, which can lead to fluctuating monthly payments. These loans are ideal for individuals planning to move or refinance within a few years and are comfortable with potential rate increases or decreases after the initial fixed-rate period.