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

An adjustable-rate mortgage (ARM) is best described as a mortgage with an interest rate that can fluctuate. This type of mortgage has an interest rate that may change periodically based on changes in a corresponding financial index. The initial rate is often lower than that of a fixed-rate mortgage, making ARMs attractive to some borrowers. However, since the rate can adjust over time, the monthly payments can also vary.

Understanding the nature of ARMs is crucial for borrowers because while they may benefit from lower payments initially, the potential for rising rates could lead to higher payments in the future. This characteristic sets ARMs apart from fixed-rate mortgages, which maintain the same interest rate throughout the life of the loan. Other options describing loans without the variability in interest rates or specifying particular property types do not accurately define the essence of an adjustable-rate mortgage.