What are the two main types of mortgages?

The correct response identifies fixed-rate mortgages and adjustable-rate mortgages (ARMs) as the two main types of mortgages. A fixed-rate mortgage features a consistent interest rate throughout the life of the loan, which means that monthly payments remain stable and predictable. This stability appeals to borrowers who prefer to have a clear understanding of their long-term financial obligations without concerns about fluctuating rates.

On the other hand, adjustable-rate mortgages (ARMs) have interest rates that can change at specified intervals, typically after an initial fixed period. This means that initial rates might be lower than those of fixed-rate mortgages, making ARMs attractive for borrowers who may plan to sell or refinance before rates adjust. However, as rates change, monthly payments can increase or decrease, adding a layer of risk for the borrower.

The other options listed, while valid forms of categorizing mortgages, do not encompass the primary classifications. For instance, variable-rate and balloon mortgages focus on specific structures rather than the broader categories of fixed versus adjustable rates. Similarly, conventional and subprime mortgages pertain to the credit quality of the borrower rather than the fundamental structure of the loans. Lastly, short-term and long-term mortgages refer to the duration of the loans rather than the interest structure, which is key when