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

FIXED-RATE vs ADJUSTABLE-RATE MORTGAGE (ARM): FIXED-RATE: The interest rate (and principal+interest payment) stays the SAME for the entire loan term (e.g., 15 or 30 years); predictable; protects against rising rates; the borrower's payment never changes due to rate; ADJUSTABLE-RATE (ARM): The rate ADJUSTS periodically based on a financial INDEX (e.g., SOFR) PLUS a MARGIN (the lender's markup); rate = index + margin; ARM FEATURES: Initial fixed period (e.g., '5/1 ARM' = fixed 5 years, then adjusts annually); ADJUSTMENT CAPS (limit how much the rate can change per adjustment and over the loan life); the payment can rise or fall as rates change; ARM RISK/BENEFIT: Lower initial 'teaser' rate, but payment uncertainty and potential increases; good if the borrower expects to move/refinance before adjustments or expects rates to fall; INDEX (variable benchmark) + MARGIN (fixed lender markup) = the ARM rate; understanding fixed vs adjustable rate structures (and ARM components: index, margin, caps, adjustment periods) is fundamental mortgage knowledge for brokers and a common national exam topic.