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

A fixed-rate mortgage is characterized by an interest rate that remains constant throughout the entire loan term. This means that the monthly payments remain the same, making it easier for borrowers to budget and plan their finances over time. Borrowers benefit from the predictability of this type of mortgage, as they are protected from potential increases in interest rates that can occur in the market.

In contrast, an adjustable-rate mortgage features an interest rate that can fluctuate based on changes in the market index to which it is tied. This means that payments can vary over time, which may lead to lower initial payments but can result in increased costs in the long run if market rates rise.

The other options address common misconceptions. Although adjustable-rate mortgages often start with lower initial rates compared to fixed-rate mortgages, they do not guarantee the same rate throughout their term, nor do fixed rates inherently imply they are always higher than their adjustable counterparts. Additionally, all mortgages, including adjustable-rate loans, consist of principal and interest components, so the claim that adjustable rates have no interest component is fundamentally incorrect.