The alternative to a fixed-rate loan is an adjustable-rate mortgage (ARM), which offers an interest rate that fluctuates -- generally based on the one month LIBOR (London Interbank Offered Rate) -- based on terms.  The rate on an adjustable rate mortgage typically is fixed for a period of time, after which it changes annually.  That change in rate, and in payment, will be calculated based upon an index and a margin, with built in caps.