Which type of mortgage is typically associated with lower interest rates over time?

An adjustable-rate mortgage (ARM) is typically associated with lower interest rates over time because it starts with a lower initial rate compared to fixed-rate mortgages. This is known as the "teaser" rate. For a specified period, often the first few years of the loan, the interest rate on an ARM is fixed before it begins to adjust periodically based on current market rates. This initial lower rate often makes ARMs appealing to borrowers who may not plan to stay in their homes long-term.

As interest rates fluctuate, the ARM's rate will adjust according to the terms of the mortgage agreement, which can lead to lower payments initially. While this can benefit borrowers in the early years, it can lead to higher payments down the line if rates increase significantly. However, the premise of having a lower initial rate compared to fixed-rate mortgages is why ARMs are seen as typically offering lower overall interest costs in the initial years of the loan.

Unlike the other types of mortgages listed, which tend to have fixed rates or specific terms that may not reflect market changes as favorably, ARMs leverage the changing interest rates to offer a potential for lower payments over time, especially for those who are sensitive to initial loan costs.