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

A fixed-rate mortgage offers an interest rate that remains constant throughout the entire term of the loan. This means that the monthly payments will remain the same, providing borrowers with predictability and stability in their budgeting. This can be particularly beneficial for those who plan to stay in their home for an extended period, as they will not be affected by fluctuations in market interest rates. Fixed-rate loans are typically available in various term lengths, such as fifteen or thirty years, allowing borrowers to choose an option that best fits their financial situation. On the other hand, an adjustable-rate mortgage, often referred to as an ARM, typically starts with a lower interest rate that may change after an initial fixed-rate period, which can range from one to ten years. After this period, the interest rate will adjust periodically based on a particular index plus a margin. This means that monthly payments can vary significantly over time, which might be advantageous if interest rates decline in the market, but it can also pose a risk if rates increase, potentially leading to higher monthly payments than initially anticipated. In summary, the primary difference between the two types of mortgages lies in the stability of the interest rate. A fixed-rate mortgage provides certainty with unchanging payments, while an adjustable-rate mortgage can offer lower initial rates but with the risk of future rate increases. Prospective borrowers should carefully assess their financial situations and long-term plans when choosing between these two options. For more specific information or to explore various loan options, individuals may wish to visit the Wells Fargo website and review their resources.