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These
loans are tied to general market conditions. Generally, they provide the lowest
starting interest rate, and therefore the smallest payment amount, but the rate
can adjust periodically within predetermined limitations, called caps. Typical
caps will allow ARM's to adjust a maximum of 2% annually, up to a maximum of
6% over the life of the loan. ARM's carry risks in that, in a rising rate climate,
the rate and monthly payment can go up. Conversely, when the market is declining,
rates and payments can decrease. Interest rates on ARM's are usually tied to
fluctuations in an index, such as the average of Treasury Bill rates. Adjustment
periods vary. ARM's are available with one year, five year, seven year, even
ten year adjustment intervals, among others. 
