1 Year ARM Adjustable-rate Mortgages, or ARMs, offer an interest rate that is adjustable throughout the entire life of the loan, and down payments change accordingly. ARMs offer an initial interest rate that's usually about 2% lower than fixed-rate. A good ARM has limits, or caps, that prevent the payments from increasing or decreasing beyond a predetermined amount. The interest rate of an ARM is determined by an index of current interest rates , and adjusted at specific, predetermined periods. With a 1-Year ARM, your interest rate adjustment period occurs every year, on the one-year anniversary of your loan.