Payments increase or decrease on a regular schedule with changes in interest rates; increases subject to limits. Types: Balloon Mortgage – Offers very low rates for an initial period of time (usually 5, 7, or 10 years); when time has elapsed, the balance is due or refinanced (though not automatically). Two-Step Mortgage – Interest rate adjusts only once and remains the same for the life of the loan; ARMS linked to a specific index or margin. Advantages: Generally offer lower initial interest rates; Monthly payments can be lower; May allow borrower to qualify for a larger loan amount.