Final answer:
An adjustable-rate mortgage (ARM) is a type of loan used to purchase a home in which the interest rate varies with the rate of inflation. While ARMs may offer lower initial interest rates, they pose a risk of higher payments in the future. Therefore, it may not always be wise to take out an ARM or balloon mortgage.
Step-by-step explanation:
An adjustable-rate mortgage (ARM) is a type of loan used to purchase a home in which the interest rate varies with the rate of inflation. While borrowers may be able to receive a lower interest rate compared to a fixed-rate loan, ARMs come with certain risks. The interest rate on an ARM can increase significantly after an initial fixed period, often resulting in higher monthly mortgage payments.
Therefore, it can be concluded that it may not always be wise to take out an ARM or balloon mortgage, as the initial lower interest rate can be misleading, and the potential for increased payments in the future makes these types of mortgages risky.