Teaser interest rate
Many have been attracted to mortgages they cannot afford once the ARM resets. Previously they could refinance at a lower interest rate using the equity accumulated in their property while housing prices were rising quickly. But declines in housing values have caused many to lose what little equity they had and sometimes to lose their homes in foreclosure.
Those who borrow with ARMs should be careful to fully understand the formula used to calculate the interest rate and the monthly payments required once the teaser rate expires.