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

The main difference between a fixed-rate mortgage and an adjustable-rate mortgage lies in the stability of the interest rate over time.

In a fixed-rate mortgage, the interest rate remains constant throughout the duration of the loan. This means that the monthly payments are predictable and stable, making budgeting easier for homeowners. Borrowers benefit from the assurance that their rate will not fluctuate with market changes, providing a consistent financial commitment over the term of the mortgage.

In contrast, an adjustable-rate mortgage (ARM) typically begins with a lower initial interest rate that might adjust periodically based on market conditions. After the introductory period, the interest rate can rise or fall, which can lead to varying monthly payments. This variability introduces a level of risk, as borrowers may face higher payments if interest rates increase.

While repayment period duration, down payment requirements, and loan default penalties can vary among different mortgage products, they do not fundamentally define the primary distinction between fixed-rate and adjustable-rate mortgages. The core difference is indeed the interest rate stability, affecting borrowers' financial planning and security.