What is the primary risk associated with adjustable-rate mortgages?

The primary risk associated with adjustable-rate mortgages (ARMs) is indeed the potential for increased monthly payments if interest rates rise. ARMs typically have an initial fixed period during which the interest rate is lower, after which the rate adjusts periodically based on a predetermined index. If overall market interest rates increase, the borrower's interest rate can rise significantly after the adjustment period, leading to higher monthly payments. This variability can create financial strain, especially if the borrower is not prepared for possible payment increases.

Understanding this risk is crucial for borrowers when deciding between fixed-rate mortgages and ARMs. Unlike fixed-rate mortgages where payments remain constant throughout the loan period, ARMs can lead to fluctuating payments that may affect the homeowner's budget and financial stability. It is this unpredictability in payments and the potential for significant increases that make ARMs riskier than fixed-rate options for many borrowers.

The other options highlight various concerns associated with mortgages, such as foreclosure risks, fee structures, and property values, but they do not specifically address the unique characteristic of ARMs that leads to increasing financial obligations based on market conditions.