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

Fixed-rate and adjustable-rate mortgages are two primary types of home loans that cater to different financing needs and preferences of borrowers. A fixed-rate mortgage features an interest rate that remains constant throughout the life of the loan. This stability allows borrowers to plan their finances effectively, knowing that their monthly payments will not change regardless of fluctuations in the market. Typically, fixed-rate mortgages come in varying term lengths, where thirty years is a common choice, but shorter terms are also available. This type of mortgage is generally favored by those who prefer long-term budgeting and plan to stay in their homes for an extended period. On the other hand, an adjustable-rate mortgage, often abbreviated as ARM, has an interest rate that may change at specified intervals based on the performance of a chosen financial index. Initially, adjustable-rate mortgages often start with a lower interest rate compared to fixed-rate mortgages. This can lead to lower monthly payments for the initial period, which can be appealing to first-time home buyers or those who may not intend to stay in one home for a long time. However, borrowers must be prepared for the possibility of rate adjustments that could lead to higher monthly payments in the future, depending on market conditions. Choosing between these two types of mortgages depends on individual circumstances, such as how long one plans to stay in the home, current financial situation, and comfort with potential changes in interest rates. It is advisable for borrowers to thoroughly evaluate their options and consider their financial goals before making a decision. For more specific information or guidance, it may be beneficial to explore relevant resources available on the CitiMortgage website.