How do fixed-rate mortgages differ from adjustable-rate mortgages?

Fixed-rate mortgages and adjustable-rate mortgages are distinguished primarily by their interest rate structures. Fixed-rate mortgages maintain a constant interest rate throughout the life of the loan, meaning that the borrower's monthly payments remain stable and predictable. This consistency allows homeowners to better budget their expenses over time, as they are not subject to fluctuations in interest rates.

In contrast, adjustable-rate mortgages (ARMs) typically start with a lower initial interest rate that can change at designated intervals based on market conditions. As a result, the monthly payments on an ARM can vary significantly over time, which can pose a financial risk for borrowers if rates increase.

Choosing fixed-rate mortgages can provide peace of mind for borrowers planning to stay in their homes for an extended period, as they won't experience unexpected increases in their mortgage payments due to changing market interest rates. This aspect makes fixed-rate mortgages a popular choice for many homebuyers seeking stability in their financial planning.