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

A fixed-rate mortgage provides borrowers with a stable and predictable monthly payment over the life of the loan because the interest rate remains constant. This predictability is advantageous for budgeting and financial planning since the borrower knows exactly how much their payment will be and can rely on that amount not changing over time.

In contrast, an adjustable-rate mortgage (ARM) has an interest rate that can change periodically based on market conditions. Typically, ARMs begin with a lower initial interest rate that can adjust at set intervals, which means the borrower's payment can increase or decrease depending on fluctuations in the broader financial market. This introduces a degree of uncertainty, as borrowers could face higher payments in the future if interest rates rise.

Understanding this fundamental difference helps borrowers choose the type of mortgage that aligns best with their financial situation and risk tolerance. The other assertions presented do not accurately capture the essential characteristics or differences between fixed-rate and adjustable-rate mortgages.