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

A fixed-rate mortgage and an adjustable-rate mortgage serve the same purpose of financing a home but differ significantly in how interest rates are structured. A fixed-rate mortgage features a consistent interest rate throughout the entire term of the loan, which typically ranges from fifteen to thirty years. This means that the monthly principal and interest payments remain unchanged for the entire duration, providing borrowers with stability and predictability in budgeting. This can be particularly advantageous when interest rates are low, as the borrower locks in that rate for the long term. On the other hand, an adjustable-rate mortgage, often referred to as an ARM, has an interest rate that can fluctuate based on market conditions. Initially, the ARM may offer a lower interest rate compared to fixed-rate options, which can make it appealing to borrowers looking for lower initial payments. However, after a specified initial period, the interest rate is subject to adjustment based on various factors, such as an index rate. This means that monthly payments can increase or decrease over time, which can lead to uncertainty in financial planning. It is important for borrowers to carefully consider their financial circumstances, how long they plan to stay in their home, and their tolerance for risk when deciding between these two types of mortgages. More detailed information about these mortgage options can typically be found on the official National City Mortgage website.