Which type of mortgage typically has a lower initial interest rate?

An adjustable-rate mortgage (ARM) typically has a lower initial interest rate compared to fixed-rate mortgages. This lower initial rate is often used to attract borrowers, as it usually provides a more affordable option in the early years of the loan.

With an ARM, the interest rate is fixed for an initial period, which can range from a few months to several years. After this period, the rate adjusts periodically based on market conditions or an index. The appeal of this option lies in the lower payments you can start with, which can make homeownership more accessible at the outset.

Understanding the characteristics of adjustable-rate mortgages is crucial for potential borrowers. They may enjoy lower payments initially, but they must also be prepared for possible increases in their payments after the initial fixed period ends. This change can significantly affect their financial situation in the long run, which is something to keep in mind when considering different mortgage options.