Ace the PSI New Jersey Real Estate Test 2025 – Unlock Your Property Power!

The main difference between a fixed-rate mortgage and an adjustable-rate mortgage (ARM) lies in the nature of the interest rates associated with each type of loan. A fixed-rate mortgage comes with an interest rate that remains constant throughout the life of the loan. This means that borrowers can reliably budget their monthly payments as the principal and interest portions will not fluctuate due to changes in market interest rates.

On the other hand, an ARM typically features an interest rate that can change at specified intervals, which means the borrower’s monthly payments may increase or decrease depending on the terms of the loan and the performance of the underlying index the ARM is tied to. This variability can introduce uncertainty in financial planning for the borrower.

Understanding this fundamental difference is crucial for borrowers when selecting a mortgage type that aligns with their financial situation and goals. It's important to consider factors such as how long the borrower intends to stay in the property and their ability to manage potential future increases in payment amounts with an ARM.