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

Numbers match the citations in the article. A working link isn't proof that a page supports a claim; check the quoted passage and date.

1. 1

   Adjustable-rate mortgage (Wikipedia)

   WikipediaPublished Oct 13, 2026Checked Oct 15, 2026

   “A variable-rate mortgage, adjustable-rate mortgage (ARM), or tracker mortgage is a mortgage loan with the interest rate on the note periodically adjusted based on an index which reflects the cost to the lender of borrowing on the credit markets. The loan may be offered at the lender's standard variable rate/base rate. There may be a direct and legally defined link to the underlying index, but where the lender offers no specific link to the underlying market or index, the rate can be changed at the lender's discretion. The term "variable-rate mortgage" is most common outside the United States, whilst in the United States, "adjustable-rate mortgage" is most common, and implies a mortgage regulated by the Federal government, with caps on charges. In many countries, adjustable rate mortgages are the norm, and in such places, may simply be referred to as mortgages. Among the most common indices are the rates on 1-year constant-maturity Treasury (CMT) securities, the cost of funds index (COFI), and the London Interbank Offered Rate (LIBOR). A few lenders use their own cost of funds as an index, rather than using other indices.”

2. 2

   Mortgage (Wikipedia)

   WikipediaPublished Oct 12, 2026Checked Oct 15, 2026

   “A mortgage loan or simply mortgage (), in civil law jurisdictions known also as a hypothec loan, is a loan used either by purchasers of real property to raise funds to buy real estate, or by existing property owners to raise funds for any purpose while putting a lien on the property being mortgaged. The loan is "secured" on the borrower's property through a process known as mortgage origination. This means that a legal mechanism is put into place which allows the lender to take possession and sell the secured property ("foreclosure" or "repossession") to pay off the loan in the event the borrower defaults on the loan or otherwise fails to abide by its terms. The word mortgage is derived from a Law French term used in Britain in the Middle Ages meaning "death pledge" and refers to the pledge ending (dying) when either the obligation is fulfilled or the property is taken through foreclosure. A mortgage can also be described as "a borrower giving consideration in the form of a collateral for a benefit (loan)".”

3. 3

   Adjustable-rate mortgages in the era of global reflation: How to model additional default risk?

   PloS one (Banai et al.)Published Mar 21, 2022Checked Oct 15, 2026

   “We investigate the problem of interest rate risk transforming into default risk of adjustable-rate mortgage loans in the EU. Bank regulation is strikingly not neutral in this aspect, it explicitly favors short-duration adjustable-rate loans over long-duration fixed-rate loans in the framework of the gap management. This asymmetry in the regulation creates perverse incentives both for banks and households, which can lead to aggressive risk-taking, over-indebtedness of unhedged households, high procyclicality of mortgage markets, and increased systemic risks. We present a stress test model to quantify potential losses stemming from this specific risk from the perspective of lender institutions. We estimate the average extra capital that is needed to cover the additional risk of adjustable-rate mortgage loans in the EU to be 0.53% of the value of the total mortgage portfolio and 1.97% of the value of the adjustable-rate mortgage portfolio. We propose introducing a stress test model as a new mandatory element into banks' risk management framework.”

4. 4

   Whispering sweet nothings: a review of verbal behaviors that undermine the effectiveness of government-mandated home-loan disclosures.

   Cognitive research: principles and implications (Choplin & Stark)Published Feb 13, 2019Checked Oct 15, 2026

   “Home loans are the largest financial transaction consumers typically enter and the consequences from entering overpriced or unaffordable home loans can devastate individuals and entire communities. This article reviews how insights from research in experimental psychology can be utilized to protect consumers. Current policy relies too much on disclosures, which-among other limitations-can be undermined by verbal behaviors on the part of salespeople. In particular, salespeople such as mortgage brokers and lenders can exploit the fact that consumers do not know where to look for information on disclosure forms by violating conversational norms, introducing confirmation biases, and using dual tasks such as talking to consumers while they are reviewing forms. They can also exploit the fact that even consumers who know where to look can forget by part-set cuing consumers. They can even cause consumers who discover problematic terms to ignore them by providing the consumers with explanations. Policymakers need to be aware of these findings to design effective consumer-protection policies. The authors suggest alternatives for policymakers to consider.”