What kind of mortgage is defined as one with an interest rate that may adjust according to market conditions?

An adjustable mortgage is characterized by an interest rate that can change periodically based on fluctuations in the market. This type of mortgage typically starts with a lower initial interest rate, which can then be adjusted at specified intervals according to predetermined financial indices, such as the LIBOR or treasury rates.

The appeal of adjustable mortgages lies in their potential for lower initial payments compared to fixed-rate mortgages, which maintain the same interest rate for the entire loan duration. However, borrowers should understand that the rates can rise (or fall) over time, leading to variability in monthly payments.

In contrast, fixed-rate mortgages maintain the same interest rate throughout the life of the loan, providing predictability and stability in payments. Balloon mortgages involve a larger payment due at the end of a specified period, while the term "sliding" is not standard in mortgage terminology. Thus, the defining characteristic of the adjustable mortgage aligns precisely with the question regarding market-based interest rate adjustments, confirming it as the correct choice.