Adjustable rate mortgages are now more popular than ever. People have been choosing an ARM instead of 15-year or 30-year fixed mortgage because of their low introductory rates and it works like this. The interest rate fluctuates on this loan program and will change every six months or annually. This changes is based on the index plus margin and this margin can be from 0% to 3%. It is not the margin that changes, but the index.
Published by a neutral party, the index rate is recognized by financial markets. One for example is the London Interbank Offered Rate or LIBOR. When London banks borrow money, this is the rate they pay. There is more fluctuation on this index than on some others.
An adjustable rate mortgage has many attractive options and can allow borrowers to then qualify for a home of a higher price since the payment will be smaller. There are some risks involved with this plan because of the fluctuating rate. If in the future the rates go up, then so will your payments.