What concerns were Adjustable Rate Mortgages designed to address?

Adjustable Rate Mortgages (ARMs) were primarily designed to address the issue of rising inflation. During periods of high inflation, interest rates tend to increase, which can make fixed-rate mortgages less attractive as borrowers may be stuck with higher rates while the cost of borrowing continues to rise.

ARMs offer a solution by allowing for lower initial rates that are typically fixed for a certain period, after which the interest rate adjusts periodically based on market conditions. This mechanism helps borrowers to benefit from potentially lower payments initially while also aligning their mortgage rates more closely with current economic conditions, particularly during inflationary times when rates are likely to change.

Given this context, ARMs provide flexibility and the possibility of lower rates in volatile economic circumstances, making them a suitable option for borrowers in an inflationary environment.