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

A fixed-rate mortgage maintains the same interest rate throughout the life of the loan, providing stability and predictability in the borrower's monthly payments. This consistency allows borrowers to effectively budget for their repayment over the loan term, which is often 15 to 30 years. This characteristic is particularly appealing in a fluctuating interest rate environment, as borrowers are protected from potential increases in rates that could raise their monthly payments if they had chosen an adjustable-rate mortgage.

In contrast, adjustable-rate mortgages typically start with a lower initial interest rate, which can then change at specified intervals based on market conditions. This means that as rates fluctuate, the payments can increase or decrease, leading to less predictability for the borrower.

The other options present misunderstandings about the features of these mortgage types. A fixed-rate mortgage does not have a variable interest rate; it is fixed. An adjustable-rate mortgage does not have a constant interest rate due to its nature of adjusting based on market rates. Lastly, while adjustable-rate mortgages may occasionally offer lower initial costs, they are not always less expensive than fixed-rate mortgages over the life of the loan, as future interest rate adjustments can lead to significantly higher payments.