What is a characteristic of an adjustable rate mortgage?

An adjustable-rate mortgage (ARM) is characterized by payments that are recalculated periodically, which is why this answer is correct. In an ARM, the interest rate is typically fixed for an initial period (such as 5, 7, or 10 years), after which it adjusts at predetermined intervals based on the performance of a specific index. As a result, the monthly payments can vary over the life of the loan. This adjustment reflects changes in the interest rate, which can lead to either increases or decreases in the monthly payment amount depending on market conditions.

The other potential choices do not align with the fundamental nature of an adjustable-rate mortgage. For instance, fixed payments for the entire term imply a level of stability that does not exist in an ARM, as these loans inherently feature fluctuating payment amounts tied to an adjustable interest rate. Similarly, while ARMs can initially offer lower rates, there is no guarantee that they will result in lower total costs over the term of the loan due to potential increases in interest rates. Lastly, payments that only cover interest reflect a different type of loan structure, known as an interest-only loan, which is distinct from an adjustable-rate mortgage that typically requires both principal and interest payments based on the current rate.