What is the primary difference between a fixed-rate mortgage and an adjustable-rate mortgage (ARM)?

What is the primary difference between a fixed-rate mortgage and an adjustable-rate mortgage (ARM)?

• A. An ARM has higher fees
• B. A fixed-rate mortgage has a constant interest rate
• C. A fixed-rate mortgage requires a down payment
• D. An ARM has lower initial payments

Answer: (B)

The primary distinguishing feature of a fixed-rate mortgage is that it maintains a constant interest rate throughout the life of the loan. This stability allows borrowers to have predictable monthly payments, which aids in budgeting and financial planning. With a fixed-rate mortgage, the interest rate agreed upon at the outset does not change, regardless of market fluctuations. This characteristic contrasts with adjustable-rate mortgages (ARMs), where the interest rate can change after an initial fixed period, potentially leading to varying monthly payments over time. Understanding this distinction is essential for borrowers when choosing a mortgage type, as it affects long-term financial commitments and the total amount paid over the life of the loan.

The primary distinguishing feature of a fixed-rate mortgage is that it maintains a constant interest rate throughout the life of the loan. This stability allows borrowers to have predictable monthly payments, which aids in budgeting and financial planning. With a fixed-rate mortgage, the interest rate agreed upon at the outset does not change, regardless of market fluctuations.

This characteristic contrasts with adjustable-rate mortgages (ARMs), where the interest rate can change after an initial fixed period, potentially leading to varying monthly payments over time. Understanding this distinction is essential for borrowers when choosing a mortgage type, as it affects long-term financial commitments and the total amount paid over the life of the loan.