What is the key difference between fixed-rate and adjustable-rate mortgages?

The key difference between fixed-rate and adjustable-rate mortgages lies in the interest rate stability over the life of the loan. Fixed-rate mortgages feature an interest rate that remains constant throughout the duration of the loan, providing borrowers with predictable monthly payments and stability in budgeting. This consistency is particularly appealing to those who prefer to lock in a rate, as it safeguards them from potential interest rate increases in the future.

In contrast, adjustable-rate mortgages (ARMs) can have rates that fluctuate based on market conditions, which may lead to varying monthly payments over time. This variability means that while ARMs may offer lower initial rates and payments, borrowers face the risk of their payments increasing when the market rates rise.

Understanding this distinction is critical for making informed decisions about which mortgage type best fits individual financial circumstances and goals.