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

The distinction between fixed-rate and adjustable-rate mortgages is primarily centered on how the interest rates are structured over the life of the loan. Fixed-rate mortgages come with constant interest rates, meaning that the rate remains unchanged for the duration of the loan. This stability allows borrowers to predict their monthly payments, which can be beneficial for budgeting.

In contrast, adjustable-rate mortgages typically feature an interest rate that can fluctuate throughout the life of the loan. Initially, these loans may offer lower rates than fixed-rate mortgages, but after a set period, the rates are subject to change based on a specific index. This means that borrowers may experience increases in their monthly payments if interest rates rise.

Understanding this difference is crucial for borrowers to make informed decisions based on their financial situations and long-term plans. Borrowers who prioritize predictability and stability might lean towards fixed-rate mortgages, while those who may benefit from potentially lower initial payments and can manage the risks of changing rates might consider adjustable-rate options.