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

A fixed-rate mortgage maintains the same interest rate and monthly principal and interest payment throughout the entire loan term, providing predictable costs for the borrower. An adjustable-rate mortgage, or ARM, has an interest rate that changes periodically based on a market index plus a margin set by the lender. ARMs typically start with a lower rate than fixed-rate loans during an initial fixed period, then adjust annually. Most ARMs have rate caps limiting how much the rate can increase per adjustment period and over the life of the loan.