An Adjustable-Rate Mortgage (ARM) starts with a fixed introductory rate for a set period — commonly 5, 7, or 10 years — then adjusts periodically based on an index (typically SOFR) plus a margin set by the lender. A 7/6 ARM has 7 years fixed, then adjusts every 6 months.
ARMs usually start with a lower rate than fixed-rate mortgages, which can make sense if you plan to sell or refinance before the fixed period ends. Caps limit how much the rate can adjust at each reset and over the life of the loan.
After the 2008 housing crisis, ARMs became safer products: most modern ARMs are fully underwritten at the higher-payment scenario, so borrowers must qualify even if the rate adjusts up. They're a legitimate tool — just understand the reset math before signing.