What characterizes an adjustable rate mortgage compared to a fixed rate mortgage?

An adjustable rate mortgage (ARM) is characterized by its interest rate that changes at specified times, which is a fundamental aspect that distinguishes it from a fixed rate mortgage. In an ARM, the initial interest rate is usually lower than that of a fixed rate mortgage, and after an introductory period, the rate adjusts at predetermined intervals based on a specific index. This fluctuation can lead to either increases or decreases in the monthly payment depending on changes in the interest rates, making it a dynamic loan option.

In contrast, a fixed rate mortgage maintains a constant interest rate throughout the life of the loan, providing stability in monthly payments and shielding the borrower from interest rate fluctuations. The other characteristics such as having no risk of interest rate fluctuation or a lower overall cost are not inherently true for ARMs and can vary based on market conditions and individual loan terms. Thus, the distinguishing feature of an ARM is indeed its ability to adjust the interest rate at specific intervals.