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

The key distinction between a fixed-rate mortgage and an adjustable-rate mortgage lies in how the interest rates are structured over the term of the loan. A fixed-rate mortgage maintains a constant interest rate throughout the life of the loan, providing homeowners with predictable monthly payments. This uniformity allows borrowers to budget effectively, as the total interest costs remain stable regardless of market fluctuations.

In contrast, an adjustable-rate mortgage (ARM) typically starts with a lower interest rate that may fluctuate after an initial fixed period. This means that while the payments may be lower initially, they can increase or decrease depending on changes in the market interest rates during subsequent adjustment periods. This variability introduces an element of risk for the borrower, as they cannot predict future payments with certainty.

The other options do not accurately reflect the primary differences between these two types of mortgages. While some mortgages may require a down payment, this is not a defining characteristic of fixed or adjustable-rate mortgages. Similarly, both types of mortgages can be available for different loan terms, and both new and existing homes can be financed with either type, making those options incorrect as well.