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

The choice highlighting that fixed-rate mortgages have constant interest rates while adjustable-rate mortgages can fluctuate is correct because it accurately describes the fundamental nature of these two types of loans. In a fixed-rate mortgage, the interest rate remains the same throughout the life of the loan, which provides predictability in monthly payments. This consistency is appealing to many borrowers, as it shields them from market fluctuations and makes budgeting easier.

In contrast, adjustable-rate mortgages (ARMs) have interest rates that can vary at scheduled intervals, which means that monthly payments can increase or decrease depending on market conditions. This potential for lower initial rates in ARMs can be attractive to some borrowers, as it often allows them to qualify for larger loans or lower initial costs. However, the uncertainty of future payments poses a risk, which is not present in fixed-rate mortgages.

The descriptions provided in the other options do not accurately reflect these core differences. For instance, the misconception that fixed-rate mortgages contain variable rates while ARMs carry fixed rates undermines the foundational definitions of each mortgage type. Similarly, limitations on duration or buyer eligibility mentioned in other choices do not pertain to the true distinctions between fixed-rate and adjustable-rate mortgages, making them incorrect.