What is the primary benefit of an adjustable-rate mortgage (ARM)?

• A. Higher long-term rates
• B. Initially lower interest rates compared to fixed-rate mortgages
• C. Guaranteed interest rates for the duration of the loan
• D. No limits on interest rate adjustments

Answer: (B)

The primary benefit of an adjustable-rate mortgage (ARM) is that it typically offers initially lower interest rates compared to fixed-rate mortgages. This initial lower rate can make the mortgage more affordable at the beginning of the loan term, allowing borrowers to save on monthly payments for a certain period, which is often referred to as the "teaser" rate.

This feature can be particularly attractive to buyers who may anticipate their financial situation improving in the future or who plan to sell or refinance before the adjustment period begins. It provides a way for borrowers to access homeownership at a lower preliminary expense, giving them an opportunity to invest in other areas or save money during that initial period.

While it's important to be aware of the potential for interest rates to rise after the initial period, the initial lower rate is a compelling reason why individuals might choose an ARM over a fixed-rate mortgage, especially in a market where interest rates are high.