Which statement correctly contrasts a fixed-rate mortgage with an adjustable-rate mortgage (ARM)?

Which statement correctly contrasts a fixed-rate mortgage with an adjustable-rate mortgage (ARM)?

• A. Fixed-rate keeps the same rate over the term; ARM has rate changes based on an index after a fixed period
• B. Fixed-rate payments adjust with market rates
• C. ARM keeps the same payment schedule regardless of rate
• D. Fixed-rate is always interest-only

Answer: (A)

In this contrast, the key idea is rate stability versus rate variability. A fixed-rate mortgage keeps the interest rate the same for the entire loan term, so the monthly principal-and-interest payment stays the same (assuming a standard amortizing loan). An adjustable-rate mortgage starts with an initial fixed period, then the rate adjusts at set intervals based on a published index (plus a margin); when the rate changes, the payment can change accordingly, within any caps. That’s why the correct statement is that the fixed-rate keeps the same rate over the term, while the ARM’s rate changes after the fixed period. The other options misstate how payments respond to rate changes, or incorrectly claim that fixed-rate loans are always interest-only.

In this contrast, the key idea is rate stability versus rate variability. A fixed-rate mortgage keeps the interest rate the same for the entire loan term, so the monthly principal-and-interest payment stays the same (assuming a standard amortizing loan). An adjustable-rate mortgage starts with an initial fixed period, then the rate adjusts at set intervals based on a published index (plus a margin); when the rate changes, the payment can change accordingly, within any caps.

That’s why the correct statement is that the fixed-rate keeps the same rate over the term, while the ARM’s rate changes after the fixed period. The other options misstate how payments respond to rate changes, or incorrectly claim that fixed-rate loans are always interest-only.