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

A fixed-rate mortgage and an adjustable-rate mortgage (ARM) are two common types of home loans, each with its own characteristics and potential benefits. A fixed-rate mortgage has a consistent interest rate that remains the same throughout the life of the loan, which typically ranges from fifteen to thirty years. This means that the monthly payment for principal and interest will remain unchanged, providing borrowers with predictable payments and stability against fluctuating interest rates. This can be particularly appealing to those who prefer budgeting with fixed expenses. On the other hand, an adjustable-rate mortgage has an interest rate that can change periodically based on market conditions. Initially, ARMs often feature lower rates compared to fixed mortgages for a specified period, such as the first five to seven years. After this period, the interest rate may adjust annually or at another specified interval, which can result in fluctuating monthly payments. While this can lead to savings in the short term, it introduces uncertainty as borrowers may experience higher payments if interest rates rise. When choosing between these two options, it is essential for borrowers to consider their financial situation, risk tolerance, and how long they plan to stay in the home, as these factors can influence which mortgage type would be more suitable.