What type of mortgage has an interest rate that is adjusted periodically?

An adjustable rate mortgage is characterized by an interest rate that changes at specified intervals, often in relation to a financial index. The initial interest rate is usually lower than that of a fixed-rate mortgage, which attracts borrowers looking for initial affordability. Over time, as the market fluctuates, the interest rate on an adjustable rate mortgage will adjust, which can lead to lower payments when rates decrease but can also result in higher payments if rates rise. This feature makes it distinct from fixed-rate mortgages, where the interest rate remains unchanged throughout the life of the loan, providing stability in monthly payments. Balloon and interest-only mortgages have different structures and payment concerns, focusing on large payments due at maturity or only paying interest for a specific period, rather than changing interest rates.