Which type of mortgage typically has a lower initial interest rate but adjusts after a specified period?

An Adjustable Rate Mortgage (ARM) typically has a lower initial interest rate compared to other types of mortgages, such as fixed-rate mortgages. This initial rate is often locked in for a specified period, which can range from a few months to several years, depending on the terms of the loan. After this initial period, the interest rate adjusts periodically based on a specific index, plus a margin set by the lender. This means that while borrowers benefit from lower payments at the beginning of the loan term, their payments may increase significantly once the adjustment period begins, depending on market conditions.

The other types of mortgages listed do not exhibit the same characteristics as an Adjustable Rate Mortgage. A Fixed Rate Mortgage maintains the same interest rate throughout the life of the loan, providing borrowers with predictable payments. A Graduated Payment Mortgage features lower initial payments that gradually increase over time but does not adjust based on market conditions. A Reverse Mortgage is designed primarily for older homeowners, allowing them to convert part of their home equity into cash, and does not feature adjustable payments in the same sense as an ARM. Thus, the nature of how interest rates are applied and adjusted is what distinctly identifies an ARM.