Which loan is also known as a variable rate mortgage and fluctuates due to market rates?

• A. Adjustable rate mortgage
• B. Graduate payment mortgage
• C. Sale & leaseback
• D. Reverse mortgage

Answer: (A)

A loan whose interest rate changes with the market is an adjustable-rate mortgage. In an adjustable-rate mortgage, the rate isn’t fixed for the entire term; it resets at set intervals based on a specific index plus a margin. Because the index moves with broader interest-rate trends, the rate—and therefore the monthly payment—can rise or fall over time. Many ARMs start with a lower initial rate during a fixed introductory period, then adjust periodically (for example, annually) after that. This structure offers the possibility of lower payments if rates stay low, but it also comes with the risk of payment increases when rates climb. Lenders typically include caps to limit how much the rate can adjust at each reset and over the life of the loan.

The other options describe different concepts. A graduated payment mortgage begins with smaller payments that increase over time, rather than the rate changing with market conditions. A sale-and-leaseback is not primarily a mortgage at all but a financing arrangement where the property is sold and then leased back. A reverse mortgage is designed for homeowners to convert home equity into funds, typically with different repayment dynamics and not driven by market-rate adjustments in the same way as an adjustable-rate loan.