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

The distinction between a fixed-rate mortgage and an adjustable-rate mortgage centers on the nature of the interest rate associated with each type. In a fixed-rate mortgage, the interest rate remains constant throughout the life of the loan, providing predictability in monthly payments and allowing borrowers to plan their finances without worrying about fluctuating rates. This stability is particularly appealing to homeowners who prefer to maintain consistent payment amounts over the long term.

Conversely, an adjustable-rate mortgage (ARM) typically starts with a lower interest rate that can change periodically based on the performance of a specified financial index or benchmark rate. As market conditions vary, the interest rate on an ARM may increase or decrease at set intervals, impacting monthly payments accordingly. Borrowers with ARMs must be prepared for potential increases in their payments over time, which can complicate budgeting and financial planning.

This foundational understanding helps clarify why option B effectively captures the essence of the difference between the two mortgage types.