How does a fixed-rate mortgage differ from an adjustable-rate mortgage?

A fixed-rate mortgage is characterized by a consistent interest rate that remains unchanged for the duration of the loan, which typically ranges from 15 to 30 years. This stability means that the monthly payment amount will also stay the same, allowing borrowers to budget effectively without worrying about fluctuations in their mortgage payment due to rising interest rates.

In contrast, an adjustable-rate mortgage (ARM) features interest rates that can change over time. Initially, these loans often start with a lower rate than fixed-rate mortgages, but after a set period, the interest rate adjusts periodically based on market conditions, which can lead to increased monthly payments. This variability is crucial for borrowers to understand because it can impact long-term financial planning.

Understanding this difference is important for prospective homebuyers to make informed decisions about which type of mortgage aligns better with their financial situation and risk tolerance.