Which of the following best describes an adjustable-rate mortgage?

Which of the following best describes an adjustable-rate mortgage?

• A. A mortgage with fixed payments
• B. A mortgage that fluctuates with interest rates
• C. A mortgage that requires a balloon payment
• D. A mortgage issued to high-risk borrowers

Answer: (B)

An adjustable-rate mortgage is characterized by its ability to fluctuate in interest rates, which in turn affects the borrower's monthly payments. This type of mortgage typically starts with a lower interest rate compared to fixed-rate mortgages, and after an initial period, the interest rate adjusts periodically based on a benchmark or index. This means that as market conditions change, the costs of borrowing can increase or decrease, directly impacting the payments due from the borrower. In contrast, a mortgage with fixed payments remains constant over the life of the loan, thus not describing the adjustable-rate aspect. A balloon payment refers to situations where a large payment is due at the end of the loan term, which is not a defining feature of adjustable-rate mortgages. Lastly, while adjustable-rate mortgages may be issued to a variety of borrowers, they are not specifically categorized as mortgages for high-risk borrowers.

An adjustable-rate mortgage is characterized by its ability to fluctuate in interest rates, which in turn affects the borrower's monthly payments. This type of mortgage typically starts with a lower interest rate compared to fixed-rate mortgages, and after an initial period, the interest rate adjusts periodically based on a benchmark or index. This means that as market conditions change, the costs of borrowing can increase or decrease, directly impacting the payments due from the borrower.

In contrast, a mortgage with fixed payments remains constant over the life of the loan, thus not describing the adjustable-rate aspect. A balloon payment refers to situations where a large payment is due at the end of the loan term, which is not a defining feature of adjustable-rate mortgages. Lastly, while adjustable-rate mortgages may be issued to a variety of borrowers, they are not specifically categorized as mortgages for high-risk borrowers.