How do fixed-rate mortgages differ from adjustable-rate mortgages (ARMs)?

Fixed-rate mortgages are characterized by having a constant interest rate over the entire life of the loan. This means that the monthly payment remains the same, providing borrowers with predictable budgeting and financial stability. Homebuyers often choose fixed-rate mortgages for this reason, as it protects them from interest rate fluctuations in the market. In contrast, adjustable-rate mortgages (ARMs) feature variable interest rates that can change at specified times, which can lead to lower initial payments but uncertainty regarding future costs.

The other choices present inaccuracies regarding ARMs and fixed-rate mortgages, as ARMs do not necessarily carry higher rates than fixed options, they certainly require monthly payments just like fixed-rate options, and fixed-rate mortgages maintain their interest rates rather than change them. Understanding the fundamental difference in interest rate stability is key when evaluating mortgage options.