Adjustable-rate mortgage
An adjustable-rate mortgage, also known as a variable-rate mortgage, generally starts out with an interest rate lower than a fixed-rate mortgage. This saves you money early on, and may help you qualify for a more expensive home. However, your rate is tied to a market index. As the index goes up or down, your interest rate and payments will also change at each scheduled adjustment date. Rate caps limit the amount your interest rate can change, but your payment could increase quite a bit, possibly by hundreds of dollars a month. Make sure you know what your maximum payment could be and whether you can afford it.