Final answer:
Interest rates are higher on fixed-rate mortgages because they offer stability and protection to borrowers, while adjustable-rate mortgages offer lower initial rates but come with the risk of potential increases in the future.
Step-by-step explanation:
The reason why interest rates on fixed-rate mortgages are usually slightly higher than adjustable-rate mortgages (ARMs) and other special mortgages is because fixed-rate mortgages offer stability and protection to borrowers. The lender takes on more risk with fixed-rate mortgages because they are locked into a specific interest rate for the entire duration of the loan, regardless of market conditions. This risk is reflected in slightly higher interest rates to compensate for the certainty they provide. On the other hand, adjustable-rate mortgages (ARMs) have interest rates that can fluctuate based on market conditions, which allows lenders to offer lower initial interest rates. However, borrowers bear the risk of potentially higher rates in the future if market conditions change.