An adjustable-rate mortgage (ARM) is a type of loan where the interest rate and monthly payments can fluctuate over time. Unlike fixed-rate mortgages, which have constant interest rates and payments, ARMs are tied to a specific index, such as the London Interbank Offered Rate (LIBOR) or the prime rate. As this index changes, so too does the interest rate on the ARM. To mitigate the risk of significant interest rate increases, ARMs often include interest rate caps that limit how much the interest rate can change in a single adjustment period and over the life of the loan. Many ARMs also offer an initial fixed-rate period, providing borrowers with a sense of stability at the beginning of the loan.