For which type of borrower would an adjustable rate loan generally not be a good idea?

• A. A person about to retire (fixed income)
• B. A borrower planning to move in a few years
• C. A borrower seeking the lowest initial rate
• D. A long-term investor

Answer: (A)

Adjustable-rate loans expose borrowers to payment variability because the interest rate can rise after the initial period. This makes them less suitable for someone on a fixed income, such as a borrower about to retire. In retirement, monthly cash flow is limited and predictable, so any increase in mortgage payments can disrupt the budget and create financial strain. Even if rates later fall, there’s no guarantee you’ll be able to refinance or weather higher payments during the adjustment periods. The other scenarios can align with ARM features—short-term plans or expectations of rate movement—whereas a retiree needs payment stability, making this loan type a poor fit.