What defines an Adjustable Rate Mortgage (ARM)?

An Adjustable Rate Mortgage (ARM) is characterized by a fluctuating interest rate that is linked to a specified financial index. This means that the interest rate can change over time, typically at predetermined intervals, based on movements in the index. As a result, the monthly payments can vary, which can impact the borrower's financial planning. The adjustable nature of the interest rate can lead to lower initial payments compared to fixed-rate mortgages but carries the risk of increasing payments if interest rates rise.

The other choices do not accurately describe an ARM. A fixed interest rate for the life of the loan corresponds to a fixed-rate mortgage. A loan secured by real estate only is a more generic term and does not encompass the adjustable nature of ARMs. Lastly, a loan that does not require monthly payments describes specific types of loans, like some interest-only loans or specific government loans, rather than an ARM. This means that option B clearly defines the essence of an Adjustable Rate Mortgage.