What type of mortgage product would have a rate that can change over time?

Study for the CFPB Mortgage Compliance Test. Learn with detailed quizzes and flashcards. Understand the key concepts, regulations, and guidelines with comprehensive explanations. Get ready to ace your exam!

An adjustable-rate mortgage (ARM) is designed specifically to have a rate that can change over time. The interest rate on an ARM is typically fixed for an initial period, after which it adjusts at regular intervals based on market indicators, such as the LIBOR or another index. This adjustment can lead to lower initial monthly payments compared to fixed-rate mortgages, but it also carries the risk that payments may increase significantly when rates rise.

In contrast, a fixed-rate mortgage maintains the same interest rate throughout the life of the loan, providing consistent monthly payments that are predictable and stable. Similarly, a constant-rate mortgage, which functions like a fixed-rate mortgage, would also not experience rate fluctuations. Traditional mortgage is a descriptive category that does not specifically imply any variability in interest rates—it may refer to either fixed or adjustable products depending on context. Thus, the adjustable-rate mortgage is the clear choice when discussing mortgage products that can have changing rates over time.

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