What is often a drawback of an adjustable-rate mortgage?

An adjustable-rate mortgage (ARM) typically comes with the feature that the interest rate can change over time, based on market conditions or indices. This means that while the initial interest rate may be lower than that of a fixed-rate mortgage, it can increase after a specified period. As the interest rate rises, the monthly payments will also increase, putting potential strain on the borrower's budget. This variability in payments is often considered a significant drawback because borrowers may struggle to afford higher payments in the future, leading to financial uncertainty.

The other options do not accurately reflect common characteristics of ARMs. For instance, while some ARMs might have lower initial payments, they do not inherently pay off faster than fixed-rate loans; rather, they can maintain a similar repayment structure depending on the terms. A higher down payment is not a standard feature of ARMs compared to fixed-rate mortgages; both types can vary widely regarding down payment requirements. Finally, ARMs do not offer fixed interest rates; they are designed specifically to have rates that fluctuate throughout the life of the loan.