What is an adjustable-rate mortgage's initial rate?

An adjustable-rate mortgage (ARM) typically features an initial rate that is fixed for a specific introductory period, which is usually lower than the prevailing rates of fixed-rate mortgages at that time. This initial rate provides borrowers with lower monthly payments during the early years of the loan, making it an attractive option for those who may plan to move or refinance before the adjustable period kicks in. As the loan transitions to the adjustable phase, the interest rate can fluctuate based on market conditions and specific index rates, which can lead to higher subsequent payments.

Given that the initial rate is designed to be lower to entice borrowers, it enhances affordability at the beginning of the mortgage period. This is in contrast to the incorrect options, which either refer to conditions and metrics that do not apply specifically to ARMs or misconstrue how initial rates work in the context of adjustable versus fixed rates.