What type of mortgage provides payments that vary over time based on market trends?

An adjustable-rate mortgage is characterized by payments that fluctuate over time in accordance with changes in market conditions, specifically interest rates. Initially, it typically offers a fixed interest rate for a set period; however, after this period, the rate adjusts at predetermined intervals. These adjustments are based on a specific index, which reflects current market rates, leading to variable monthly payments. This means that as interest rates rise or fall in the market, the borrower's mortgage payment will also increase or decrease.

In contrast, a fixed-rate mortgage maintains a consistent interest rate throughout the life of the loan, resulting in predictable monthly payments. A smart-rate mortgage, while not a standard term commonly found in mortgage literature, might suggest a variable rate tied to market conditions, but it isn't a widely recognized or defined type of loan. An interest-only mortgage allows borrowers to pay only the interest for a set time, which does not directly relate to market trends affecting principal payments. Therefore, the defining feature of the adjustable-rate mortgage is its responsiveness to market fluctuations, which is what makes it the correct answer to this question.