An ARM is an adjustable-rate mortgage. Unlike fixed-rate mortgages that have an interest rate that remains the same for the life of the loan, the interest rate on an ARM will change periodically.
The initial interest rate of an ARM is lower than that of a fixed-rate mortgage and a typical down payment is 5%.This is a great option for borrowers looking to take advantage of the "teaser" rate or initial fixed period, especially if they're planning to sell before the fixed period ends or pay the loan off with cash or a refinance.
In an adjustable rate mortgage, there will be an initial fixed rate period, but once it ends the rate changes according to market conditions. The change in rate will continue throughout the life of the loan but only during set periods of rate adjustments.
Most homeowners get into adjustable-rate mortgages for the lower initial payment, and then usually refinance the loan when the fixed period ends.