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

An adjustable-rate mortgage (ARM) is characterized by an interest rate that changes at predetermined intervals throughout the life of the loan. This structure allows the interest rate to fluctuate based on changes in an underlying benchmark or index, resulting in potentially lower initial payments compared to fixed-rate mortgages. However, it is important for borrowers to understand that while these rates may start lower, they can increase over time, which may lead to higher monthly payments in the future. This gives ARMs a certain level of risk and variability compared to the stability of a fixed-rate mortgage, where the interest rate remains constant for the entire duration of the loan. Therefore, option B accurately captures the essence of how adjustable-rate mortgages function.