What type of property financing is characterized by fluctuating interest rates?

An adjustable-rate mortgage (ARM) is characterized by fluctuating interest rates that adjust at predetermined intervals based on a specific index. This means that the interest rate on the mortgage can change over time, typically after an initial fixed-rate period. For example, an ARM may start with a lower interest rate for the first few years, after which the rate adjusts periodically, leading to potentially lower initial payments but also the risk of higher payments in the future if interest rates rise.

In contrast, a fixed-rate mortgage maintains a constant interest rate throughout the life of the loan, ensuring predictable monthly payments. An interest-only mortgage allows borrowers to pay only the interest for a set period, but then switches to principal and interest payments, which can also result in fluctuating payments after the interest-only period. Government-backed mortgages, such as FHA or VA loans, often come with fixed interest rates, making them stable in terms of payment amounts over time.

Thus, adjustable-rate mortgages are distinctive because their interest rates and, consequently, the monthly payments can change, depending on the market conditions, making them the correct answer to the question.