An adjustable-rate mortgage (ARM) is a loan that offers an initial period of fixed interest that then resets at a specified interval. Typically, you’ll see an ARM using as two numbers. For example, a 5/1 ARM has a fixed interest rate for the first 5 years that then adjusts based on the fluctuation of an index and market rates every year after that. An ARM tends to have a lower initial interest rate than a fixed-rate mortgage. Most ARMs have a rate cap that limits the amount the interest rate can change, both in an adjustment period and over the life of the loan. Also called a variable-rate mortgage. However, it does come with a certain amount of unpredictability. That’s because when an ARM enters its adjustable period, its interest rate may trend up or down depending on the state of the market.