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

A fixed-rate mortgage is defined by its stable interest rate, which remains constant throughout the life of the loan. This predictability allows borrowers to plan their long-term budgets without the concern of fluctuating monthly payments, making it an appealing option for those who prefer financial stability.

Alternatively, adjustable-rate mortgages (ARMs) typically have interest rates that can change at specified intervals based on market conditions, meaning that monthly payments can increase or decrease over time. This characteristic is what sets ARMs apart from fixed-rate mortgages, where interest rates are locked in for the duration of the loan.

The other options fail to accurately capture the key differences between these two types of mortgages. A changing interest rate is a defining element of an adjustable-rate mortgage, not a fixed-rate mortgage, while suggesting that an adjustable-rate mortgage is always cheaper does not reflect the varied market conditions and individual loan terms that can affect total loan costs.