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

The key distinction between a fixed-rate mortgage and an adjustable-rate mortgage lies in the stability of the interest rate over time. A fixed-rate mortgage features a constant interest rate throughout the life of the loan, which means that borrowers can predict their monthly payments, making budgeting easier. This consistency offers protection against potential interest rate increases in the future, providing peace of mind to homeowners who prefer stability in their financial obligations.

In contrast, adjustable-rate mortgages typically start with a lower initial interest rate that can change or fluctuate at predetermined intervals based on market conditions. This can lead to increased monthly payments if interest rates rise, introducing a variable element to loan costs that can impact personal finance over time.

This understanding highlights why the option identifying a fixed-rate mortgage as having a constant interest rate is correct.