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

A fixed-rate mortgage is characterized by its constant interest rate throughout the life of the loan, which means the borrower will make the same monthly payment for the duration of the mortgage. This provides stability and predictability for budgeting since the borrower knows exactly what their payments will be over time.

In contrast, adjustable-rate mortgages (ARMs) have interest rates that can fluctuate after a predetermined initial fixed period, leading to variable monthly payments. This option combines a lower initial interest rate with the possibility of rate adjustments, which can increase or decrease future payments based on market conditions.

The option stating that adjustable-rate mortgages require no down payment is misleading, as the requirement for down payments varies by lender, not by the mortgage type itself. Additionally, saying that adjustable-rate mortgages are only available for commercial properties is incorrect; they can also be available for residential properties. Understanding these distinctions is crucial for anyone navigating home financing options.