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Which type of loan features lower interest rates for short duration, then changes with current rate averages

Adjustable-rate mortgage (ARM) loans.

Did you know?

Did you know that there is a type of loan that offers lower interest rates for a short duration, but then adjusts based on the current rate averages? This loan, often known as an adjustable-rate mortgage or ARM, initially provides borrowers with a lower interest rate, making it an attractive option for those seeking lower monthly payments in the early years of their mortgage. However, after the initial fixed-rate period, the interest rate adjusts periodically, typically based on a benchmark index such as the prime rate or LIBOR, reflecting prevailing market conditions. It is important for borrowers to carefully consider their financial circumstances and the potential risks associated with fluctuating interest rates when opting for an ARM.