What distinguishes a fixed-rate mortgage from an adjustable-rate mortgage?

A fixed-rate mortgage is defined by having a constant interest rate throughout the life of the loan. This means that the borrower’s monthly payments for principal and interest remain unchanged regardless of fluctuations in the market or changes in interest rates. This stability allows borrowers to plan their budgeting and finances with confidence, as they won’t experience unexpected increases in their mortgage payment.

In contrast, an adjustable-rate mortgage (ARM) typically begins with a lower initial interest rate that can change at specified intervals based on market conditions. As a result, the monthly payments can rise or fall over time depending on these adjustments. Hence, understanding that a fixed-rate mortgage guarantees a stable interest rate while an ARM does not is crucial when evaluating mortgage options.