In terms of payment stability, which statement is true about fixed-rate versus adjustable-rate mortgages?

In terms of payment stability, which statement is true about fixed-rate versus adjustable-rate mortgages?

• A. ARM payments stay constant; fixed-rate adjusts.
• B. Fixed-rate payments adjust; ARM payments stay constant.
• C. Fixed-rate guarantees a constant payment; ARM payments can change with rate adjustments.
• D. ARM payments are always tax-deductible.

Answer: (C)

Paying attention to payment stability, fixed-rate mortgages lock in the interest rate for the entire loan term, so the monthly principal and interest payment stays the same each month (even though taxes and insurance in escrow can cause the total monthly amount to vary). An adjustable-rate mortgage changes the interest rate at set dates based on a benchmark, so the monthly payment can go up or down when those rate changes occur. That contrast is what makes the statement about a constant payment for fixed-rate loans and variable payments for ARMs the correct description. The idea that ARM payments stay constant or that fixed-rate payments adjust would misrepresent how these loans work. And whether interest is tax-deductible isn’t about payment stability and varies by tax law, not by loan type.

Paying attention to payment stability, fixed-rate mortgages lock in the interest rate for the entire loan term, so the monthly principal and interest payment stays the same each month (even though taxes and insurance in escrow can cause the total monthly amount to vary). An adjustable-rate mortgage changes the interest rate at set dates based on a benchmark, so the monthly payment can go up or down when those rate changes occur. That contrast is what makes the statement about a constant payment for fixed-rate loans and variable payments for ARMs the correct description.

The idea that ARM payments stay constant or that fixed-rate payments adjust would misrepresent how these loans work. And whether interest is tax-deductible isn’t about payment stability and varies by tax law, not by loan type.