What is the difference between a fixed-rate and adjustable-rate mortgage?

A fixed-rate mortgage features an interest rate that remains the same for the entirety of the loan period. This characteristic provides borrowers with predictability in their monthly payments, allowing them to budget more effectively over time. Because the interest rate does not fluctuate, borrowers are protected from market volatility that could cause interest rates to rise in the future. This stability is a significant advantage for many homeowners who prefer consistent payment amounts.

In contrast, adjustable-rate mortgages (ARMs) can have interest rates that change periodically based on market conditions. This means that monthly payments can vary, which may lead to uncertainty for borrowers over the long term. Although ARMs sometimes start with lower initial interest rates compared to fixed-rate loans, the potential for rate increases can result in higher costs later on.

By focusing on the nature of the fixed-rate mortgage, the distinction becomes clear and highlights its advantages in terms of stability and predictability in financing a home.