What type of mortgage interest rate can vary over time based on an index?

An adjustable rate mortgage is a type of mortgage where the interest rate can fluctuate over time. This variation is typically tied to a specific financial index, which reflects broader market interest rates. When the index rises, the mortgage interest rate can increase, and when the index falls, the rate can decrease. This means the borrower's monthly payments can change at specified intervals, which could potentially result in lower initial payments compared to fixed-rate mortgages, making them appealing during times of low interest rates.

In contrast, fixed rate mortgages maintain the same interest rate throughout the life of the loan, ensuring predictable monthly payments and stability in financial planning. While graduated payment mortgages feature payments that start low and then increase over time, they do not involve variations based on an index. Conventional mortgages simply refer to loans not insured or guaranteed by the federal government but can be either fixed or adjustable in their interest rate structure.

Therefore, the adjustable rate mortgage is the correct answer, as it specifically allows for fluctuations in the interest rate based on market conditions and the chosen index.