What type of mortgage adjustment allows for periodic changes to the interest rate based on market conditions?

An Adjustable-Rate Mortgage (ARM) is designed to provide periodic adjustments to the interest rate based on market conditions. This means that over the life of the mortgage, the interest rate can fluctuate at predetermined intervals (such as annually) according to changes in a specific index. This feature allows borrowers to potentially benefit from lower interest rates when the market rates decrease, but it also poses a risk of higher payments if the rates rise.

In contrast, a Fixed-Rate Mortgage maintains a constant interest rate throughout the entire loan term, ensuring predictable payments. Interest-Only Mortgages require only interest payments for a specified period and do not inherently adjust interest rates based on market conditions. Balloon Mortgages have a fixed interest rate for a term but require a large payment at the end, often not linked to market fluctuations. Each of these alternatives serves different borrower needs and financial strategies, but they do not provide the same flexibility in interest rate adjustments as an Adjustable-Rate Mortgage.