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

A fixed-rate mortgage is characterized by its constant interest rate throughout the life of the loan, providing the borrower with predictable monthly payments. This stability makes budgeting easier, as the payment amount does not fluctuate with market interest rates.

In contrast, an adjustable-rate mortgage (ARM) typically starts with a lower interest rate for an initial period, after which the rate may change periodically based on market conditions. This can lead to varying monthly payments, which can increase or decrease over time depending on the performance of interest rate indexes.

The choice indicating that one type is for commercial and the other for residential properties, while possible in specific cases, is not a defining characteristic that separates the two mortgage types. Additionally, the assertion that fixed-rate mortgages require larger down payments lacks a universal truth, as down payment requirements can vary based on loan type, lender standards, and borrower qualifications. Lastly, the idea that adjustable-rate mortgages do not require credit checks is inaccurate, as creditworthiness is typically evaluated for all types of mortgage applications.