The next type of conventional loan is adjustable-rate mortgages (ARM) which offer mortgage interest rates lower than what a fixed-rate mortgage offers for a period of time, like five or 10 years, instead of the life of a loan.
And after the initial period, the interest rates and monthly payments get adjusted once a year.
So if interest rates go up, the monthly payments too will; if they drop, the borrower will pay less on mortgage payments.
Homebuyers with lower credit scores can take advantage of the adjustable-rate mortgage.
As people with poor credit do not get good rates on fixed-rate loans, an adjustable-rate mortgage can help to bring those interest rates down and bring homeownership within reach.
People who plan to move and sell their home before their fixed-rate period is up and their rates start wavering. However, the monthly payment can fluctuate.