A Fixed-rate Mortgage and an Adjustable-rate Mortgage (ARM) are two different types of home loans. The main difference lies in how the interest rate is determined and Whether it remains constant or changes over time.
# Fixed-Rate Mortgage:- A Fixed-rate Mortgage is a loan with an Interest rate that remains the same throughout the entire loan term. The Interest rate is typically determined at the time of closing the loan and does not change regardless of fluctuations in the Financial market. This means your monthly mortgage payments remain consistent over the life of the loan. Fixed-rate Mortgages provide stability and predictability, making budgeting easier for homeowners.
# Adjustable-Rate Mortgage (ARM):- An Adjustable-rate Mortgage, as the name suggests, has an interest rate that can change periodically over the life of the loan. The Initial Interest rate of an ARM is usually lower than that of a Fixed-rate Mortgage. However, after an Initial Fixed-rate period, typically ranging from 3 to 10 years, the interest rate adjusts periodically according to a predetermined index, such as the U.S. Treasury rate or the London Interbank Offered Rate (LIBOR). The adjustment frequency can vary, such as annually or even monthly.
When the Interest rate adjusts, Your monthly mortgage payments can increase or decrease, depending on the direction of the rate change. This Introduces an element of uncertainty into your budgeting, as your payments may fluctuate over time. Adjustable-rate Mortgages are often chosen by borrowers who plan to sell the property or refinance before the Initial Fixed-rate period ends .