Finance
An 'adjustable-rate mortgage' (ARM) in Texas typically has a lower initial interest rate than a fixed-rate mortgage because:
AARMs have longer terms than fixed-rate mortgages
BThe initial rate is discounted (teaser rate) and the risk of future rate increases is transferred to the borrower✓ Correct
CARMs require higher down payments
DARMs are only offered to prime borrowers
Explanation
ARMs start with a lower teaser rate but adjust periodically based on an index plus margin. The lower initial rate compensates for the borrower accepting the risk that rates may rise. Caps on ARMs limit how much the rate can change per period and over the life of the loan.
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