Which type of mortgage typically has lower initial payments but can increase over time?

An adjustable-rate mortgage is characterized by its initial lower payments which can increase after a fixed introductory period. This type of mortgage typically offers a lower initial interest rate compared to other mortgage types, making it more affordable at the start. However, after the initial period, the interest rate adjusts periodically based on market indices, leading to potentially higher payments over time as rates can increase. This variation can make borrowers susceptible to payment increases, which can complicate budgeting if not anticipated.

In contrast, fixed-rate mortgages maintain the same interest rate and monthly payment throughout the life of the loan, providing stability and predictability. Interest-only mortgages allow borrowers to pay only the interest for a certain period, causing a ballooning effect of the principal at term-end. Balloon mortgages involve low initial payments but require a large final payment after a defined period. None of these alternatives feature the same adjustable nature tied to interest rates as seen in adjustable-rate mortgages.