What is the difference between fixed-rate and adjustable rate mortgages?
A fixed-rate mortgage is a loan where the principal and interest payment never change during the life of the loan. An adjustable rate mortgage is a loan where the interest rate can change periodically. The changes in the interest rate are tied to market rates that exist at the time the rate is changed. They usually offer lower initial interest rates than fixed-rate mortgages, but can adjust upward if interest rates go up. There is a predefined cap which defines how high the interest rate can adjust.
A fixed-rate mortgage is a loan where the principal and interest payment never change during the life of the loan. An adjustable rate mortgage is a loan where the interest rate can change periodically. The changes in the interest rate are tied to market rates that exist at the time the rate is changed. They usually offer lower initial interest rates than fixed-rate mortgages, but can adjust upward if interest rates go up. There is a predefined cap which defines how high the interest rate can adjust. Fixed-rate mortgages are beneficial to those who are on a fixed income (adverse to interest rate change) and those who prefer fixed payment schedules. Adjustable rate mortgages are advantageous for those who do not plan to stay in their home for a long time, for those borrowers who do not qualify at higher fixed interest rates, and those who can financially handle fluctuating payments.
