Hawaii Pre-Licensing National Practice Exam 2025 – Your Complete All-in-One Study Guide to Exam Success!

An adjustable-rate mortgage (ARM) is designed to accommodate fluctuations in interest rates throughout its term. Unlike a fixed-rate mortgage, where the interest rate remains constant for the entire loan period, an ARM features an interest rate that can change at specific intervals. This adjustment is typically tied to a financial index, which reflects broader market conditions, resulting in the potential for the borrower's monthly payment to vary over time based on rising or falling interest rates.

This type of mortgage can be advantageous for borrowers who are comfortable with potential changes in payment amounts, especially if they anticipate that interest rates will decrease or remain stable. However, it also carries the risk of increased payments if rates rise. Therefore, understanding the structure of an adjustable-rate mortgage helps borrowers make more informed decisions when selecting a mortgage product that aligns with their financial goals and risk tolerance.