A mortgage in which the interest rate may move up or down, following a specified schedule or index, is called an ______ mortgage.

A mortgage in which the interest rate may move up or down, following a specified schedule or index, is called an ______ mortgage.

• A. Adjustable rate mortgage
• B. Balloon mortgage
• C. Fixed rate mortgage
• D. Reverse mortgage

Answer: (A)

Interest that can adjust over time is the key idea. An adjustable rate mortgage uses a rate that can move up or down in response to a specified index or schedule. The rate typically changes at set intervals and may include caps to limit how much it can change at once or over the life of the loan. Because of this, payments can go up or down with market rates, which can lower costs if rates fall but raise them if rates rise. The other loan types describe different payment patterns: a balloon mortgage features a large final payment after a short term; a fixed rate mortgage keeps the same rate for the entire term; a reverse mortgage allows a homeowner to borrow against home equity with the balance growing over time.

Interest that can adjust over time is the key idea. An adjustable rate mortgage uses a rate that can move up or down in response to a specified index or schedule. The rate typically changes at set intervals and may include caps to limit how much it can change at once or over the life of the loan. Because of this, payments can go up or down with market rates, which can lower costs if rates fall but raise them if rates rise. The other loan types describe different payment patterns: a balloon mortgage features a large final payment after a short term; a fixed rate mortgage keeps the same rate for the entire term; a reverse mortgage allows a homeowner to borrow against home equity with the balance growing over time.