What distinguishes a fixed-rate mortgage from an adjustable-rate mortgage?

A fixed-rate mortgage is defined by its unchanging interest rate over the life of the loan. This means that borrowers have consistent monthly payments, making it easier to budget and plan for future expenses. On the other hand, an adjustable-rate mortgage features an interest rate that can fluctuate at predetermined intervals, which can lead to changes in monthly payments. This variability introduces a level of uncertainty regarding future payments, as they may increase or decrease based on market conditions.

The stability offered by a fixed-rate mortgage is particularly appealing for those who prefer predictability in their financial commitments. It protects borrowers from potential interest rate hikes in the future, which can occur with adjustable-rate mortgages, thus providing peace of mind.

Other options do not correctly represent the true distinctions between these two types of mortgages. For instance, saying that a fixed-rate mortgage has variable payments while an adjustable-rate mortgage has steady payments is inaccurate. Additionally, it's incorrect to claim that a fixed-rate mortgage is restricted to a specific duration; they can be structured over various terms, just like adjustable-rate mortgages. Lastly, while costs can vary, stating that fixed-rate mortgages are always more expensive than adjustable-rate mortgages oversimplifies the complex factors that determine rates and total costs associated with these loans.