What is the disadvantage of adjustable rate mortgages?
Answer: (c)
Adjustable Rate Mortgages, or "ARMs", typically provide a low teaser rate for a number of years (typically 1 year, 3 years, or 5 years), then the interest rate could go up based on the index to which the rate is pegged. ARMs are useful for getting into a home with initial lower monthly payments, allowing the borrower to qualify for that loan. The risk of course is that the borrower can not afford the monthly payments when they go up, leading to possible foreclosure.
