What is a loan called where the interest rate is adjusted periodically?

An adjustable rate mortgage (ARM) is a type of loan where the interest rate can change at specified intervals based on market conditions. This means that the borrower's monthly payments might decrease or increase over time, depending on how interest rates fluctuate. Typically, ARMs start with a lower initial interest rate for a certain period, after which the rate adjusts periodically — for instance, annually or semi-annually. This structure allows borrowers who may not plan to stay in their home for long to benefit from lower initial payments.

In contrast, a fixed-rate mortgage has a constant interest rate throughout the life of the loan, resulting in stable payments. A graduated payment mortgage features payments that start lower and gradually increase over time, catering to borrowers whose incomes are expected to grow. A reverse mortgage is designed for older homeowners, allowing them to convert part of their home's equity into cash without having to sell their home, which generally does not involve periodic adjustments to the interest rate in an analogous way to an ARM.