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

In California, there are two main types of mortgages that individuals can take out to purchase residential real estate – a fixed-rate mortgage and an adjustable-rate mortgage. A fixed-rate mortgage offers a set interest rate throughout the entire term of the loan, which provides borrowers with the security of knowing that their monthly payments will remain the same for the life of the loan. On the other hand, an adjustable-rate mortgage has an interest rate that can change over time, meaning that the monthly payments can also change. The main difference between a fixed-rate mortgage and an adjustable-rate mortgage is the stability of the monthly payments. With a fixed-rate mortgage, borrowers are able to budget accordingly and make payments that are consistent from month to month. Conversely, an adjustable-rate mortgage involves more risk, because the interest rate is based on current market rates and can go up or down depending on what happens, making it difficult to know what one’s payments will be in the future. It is important to note, however, that adjustable-rate mortgages often come with lower interest rates than fixed-rate mortgages when they first start, so they could be a good option for those looking to save money on their mortgage payments over the long-term. Ultimately, the choice between a fixed-rate mortgage and an adjustable-rate mortgage should be based on an individual or family’s financial situation and long-term goals.

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

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