I know many lean towards the ARMs because of lower rates which equate to lower payments.. but what are the cons of this? Is it that the first year out of the fixed, that the interest rate could possibly jump up significantly? So let's say that there is a 3/1 ARM at 4.25%. By the 4th year, let's say the LIBOR is 7% and margin is another 2%. So the 4th year, the consumer can be charged 9%?? Then any year after can increase by 2% up to a certain cap specified in the loan agreement? Is my understanding correct?