It is a loan that offers a fixed rate of interest for a short period of time: three, five, or seven years. At that point, the interest rate may change up or down, depending on what index the interest rate is tied to. These loans also have limits as to how high the rate can change in a year and in the life of the loan. The borrower may continue to pay the loan at this variable or adjustable rate, or may also refinance the loan to a fixed rate conventional mortgage.