Which type of mortgage usually has lower initial payments for the borrower?

An adjustable-rate mortgage (ARM) typically has lower initial payments for the borrower compared to other types of mortgages. This is because ARMs often start with a lower interest rate than fixed-rate mortgages, especially during the initial adjustable period. During this time, borrowers benefit from reduced monthly payments, which can make home ownership more accessible initially. This structure is appealing for those who plan to own the home for a relatively short period or expect interest rates to remain low.

In contrast, fixed-rate mortgages maintain a constant interest rate throughout the life of the loan, resulting in stable, predictable monthly payments that do not start out lower than the initial rate of an ARM. Home equity loans typically involve borrowing against the equity of an existing property, and their payment structure varies but is generally not focused on lower initial payments. Interest-only mortgages allow borrowers to pay only the interest for a certain period, but they can lead to scenarios where payments jump significantly after the interest-only period ends. This can result in larger payments at a later time as compared to the lower initial payments of an ARM.

Understanding the structure and implications of each type helps borrowers make informed decisions based on their financial situations and long-term housing goals.