What is a mortgage called that has an interest rate that can adjust based on market changes?

A mortgage that has an interest rate that can adjust based on market changes is identified as an Adjustable-Rate Mortgage (ARM). This type of mortgage starts with an initial fixed interest rate that is generally lower than that of a fixed-rate mortgage. After a predetermined period, the interest rate on the loan can change at regular intervals according to a specified index or market benchmark, which means that monthly payments can increase or decrease accordingly.

The adjustable nature of this mortgage type allows borrowers to benefit from lower initial payments, but it also introduces the risk of higher payments in the future if interest rates rise. This is essential to understand, as it can impact a borrower's finances significantly over time. The ARM's structure makes it a popular choice for borrowers who anticipate potentially moving or refinancing before the adjustments happen, or who believe that interest rates will remain stable or decrease.

The other types of mortgages listed do not share this adjustable characteristic. A fixed-rate mortgage maintains the same interest rate for the entire loan term, offering more stability and predictability in payments. A conventional mortgage refers to loans that are not insured by the government and can come in both fixed and adjustable forms. Subprime mortgages are loans offered to borrowers with lower credit scores and often carry higher interest rates, but they