An adjustable rate mortgage (ARM) is a type of mortgage where the interest rate you pay on your home periodically changes, which impacts your monthly mortgage payment. The interest rates you’ve probably seen advertised for ARMs are usually a little bit lower than conventional mortgages.

 · A common cap arrangement for an adjustable-rate mortgage might be something like “2/2/5”. That means that your mortgage adjustment cannot exceed two percentage points on the initial adjustment, two percentage points on any subsequent adjustment, or five percentage points over the life of the loan.

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There’s a mortgage for every need, but here are three scenarios where an adjustable-rate mortgage can be a bad idea. Mar 28, 2017 at 10:45AM. Adjustable-rate mortgages aren’t for everyone, and can be a very bad idea for some people. An ARM offers a short-term fixed rate now in exchange for potentially higher rates later.

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One avenue you may not have considered – and may have even been warned against – however, is an adjustable rate mortgage, or ARM loan. Adjustable-rate mortgages got something of a bad rap during..

A common cap arrangement for an adjustable-rate mortgage might be something like "2/2/5". That means that your mortgage adjustment cannot exceed two percentage points on the initial adjustment, two percentage points on any subsequent adjustment, or five percentage points over the life of the loan.

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The article 3 Reasons an Adjustable-Rate Mortgage Is a Bad Idea originally appeared on Fool.com. Fool contributor Patrick Morris has no position in any stocks mentioned. The Motley Fool recommends.

Today’s Adjustable Rate Mortgage, Good or Bad Idea? Kimberly Rotter October 15, 2013 ; Updated: February 18, 2014 Not too long ago, brokers and agents alike convinced many a financially nave home buyer to buy a home he or she couldn’t afford on an interest-only ARM (adjustable rate mortgage).