Which type of mortgage would typically have a fluctuating interest rate based on market conditions?

A variable rate mortgage is characterized by its interest rate, which fluctuates based on prevailing market conditions, typically linked to a benchmark interest rate like the prime rate. This means that as market interest rates rise or fall, so too will the interest rate for the borrower. This type of mortgage can result in either lower payments when rates decrease or higher payments when rates increase, presenting both potential savings and risks to the borrower over the life of the loan.

In contrast, a fixed-rate mortgage maintains the same interest rate for the entire loan term, providing certainty in payment amounts but not taking advantage of potential market rate decreases. A hybrid mortgage combines features of both fixed and variable-rate mortgages, often starting with a fixed rate for a set period before adjusting. A static rate mortgage, while not a standard term in mortgage lending, would imply a fixed interest rate as well. Therefore, the distinctive feature of fluctuating interest rates under market conditions is the defining characteristic of a variable rate mortgage.