Finance
An adjustable-rate mortgage (ARM) typically starts with a lower interest rate than a fixed-rate mortgage because:
AARM borrowers have statistically better credit scores on average than fixed-rate borrowers
BThe rate is fixed for an initial period then adjusts periodically based on a market index, transferring interest rate risk from lender to borrower✓ Correct
CPennsylvania law requires lower initial rates on all adjustable-rate products
DARM loans never require Private Mortgage Insurance regardless of down payment
Explanation
ARMs offer lower initial rates because the lender transfers the risk of future interest rate increases to the borrower. After the initial fixed period — for example, 5 years on a 5/1 ARM — the rate adjusts annually based on an index such as SOFR plus a margin.
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