Nationwide Mortgage Licensing System (NMLS) Practice Exam

Which of the following does NOT typically feature a fixed interest rate?

1. FHA loans

2. Conventional loans

3. Adjustable-rate mortgages

4. VA loans

The correct answer is: Adjustable-rate mortgages

The choice highlighting adjustable-rate mortgages is correct, as these types of loans do not typically feature a fixed interest rate. Instead, adjustable-rate mortgages (ARMs) have interest rates that can change after an initial fixed-rate period. Typically, the initial rate is fixed for a specific term, often ranging from one to ten years, after which the rate adjusts based on market conditions. This means the borrower may experience fluctuations in their monthly payments over time. In contrast, FHA loans, conventional loans, and VA loans generally offer fixed-rate options, which means the interest rate remains constant throughout the loan term, providing borrowers with predictable monthly payments. This stability contrasts with the nature of adjustable-rate mortgages, which expose borrowers to potential increases in their payment amounts after the initial fixed period ends.