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

• A. A fixed-rate mortgage has lower fees
• B. An adjustable-rate mortgage has a constant interest rate
• C. A fixed-rate mortgage has a constant interest rate throughout the loan
• D. An adjustable-rate mortgage is typically shorter in duration

Answer: (C)

A fixed-rate mortgage is characterized by a constant interest rate throughout the life of the loan, which means that the borrower's monthly payments remain the same for the duration of the mortgage. This stability in payments allows borrowers to plan their finances with more certainty, as their mortgage payment will not change due to fluctuations in the market interest rates.

In contrast, an adjustable-rate mortgage (ARM) typically features a lower initial interest rate that may change at specified intervals based on market conditions, leading to potential increases in monthly payment amounts. This variability can introduce uncertainty into a borrower’s future payment obligations. Therefore, recognizing that a fixed-rate mortgage maintains consistent payments due to its unchanging interest rate is crucial for understanding how it differs from an adjustable-rate mortgage.