How often can an adjustable-rate mortgage (ARM) adjust its interest rates?

An adjustable-rate mortgage (ARM) can have its interest rates adjusted periodically, which is typically outlined in the loan agreement. Option C is correct because many ARMs are structured with an initial fixed-rate period followed by regular adjustments. The frequency of these adjustments can vary but is often monthly after the initial fixed-rate term expires. This means that once the initial period ends, the interest rate can change based on market conditions, which may lead to fluctuations in monthly payments.

In contrast, the other options do not accurately portray how ARMs function. The idea that rates only adjust at the end of the loan term (as suggested in the first option) does not reflect the nature of adjustable-rate loans, which are designed to adjust periodically throughout their life. The second option specifies adjustments every three or five years, but while some ARMs can be structured this way, the most common practice is more frequent adjustments (not just limited to those intervals). The final option states that an ARM does not adjust, which misrepresents the fundamental characteristic of these loans, as the defining feature of an ARM is the adjustment of rates based on market changes after an initial fixed period.