Fixed vs Adjustable Rate Mortgage
Compare fixed-rate and adjustable-rate mortgages to understand how each affects your payments, risk, and long-term costs.
Fixed-Rate Mortgage
Advantages
- Interest rate and monthly payment never change for the entire loan term
- Complete predictability makes budgeting straightforward
- Protected from rising interest rates in the future
- Simplest mortgage product to understand
Drawbacks
- Higher initial interest rate compared to an ARM's introductory rate
- If rates drop significantly, you would need to refinance to benefit
Best For
Buyers who plan to stay in their home long-term and want the security of knowing their payment will never increase.
Adjustable-Rate Mortgage (ARM)
Advantages
- Lower initial interest rate during the fixed period (typically 5, 7, or 10 years)
- Lower initial monthly payments mean you may qualify for a larger loan amount
- If you sell or refinance before the adjustment period, you benefit from the lower rate without risk
Drawbacks
- After the initial period, rates adjust periodically and your payment can increase substantially
- Rate caps limit increases per adjustment, but payments can still rise significantly over time
- More complex loan structure that requires careful planning around the adjustment date
Best For
Buyers who plan to sell or refinance within 5 to 10 years, or those who expect their income to increase significantly in the near future.
Key Differences
| Category | Fixed-Rate Mortgage | Adjustable-Rate Mortgage (ARM) |
|---|---|---|
| Rate Stability | Locked for the entire loan term (15 or 30 years) | Fixed for 5, 7, or 10 years, then adjusts annually |
| Initial Rate | Higher starting rate | 0.5-1.0% lower introductory rate |
| Payment Predictability | Same payment every month for the life of the loan | Predictable during fixed period, variable after |
| Risk Level | Low, no rate surprises | Moderate to high after fixed period ends |
| Best Rate Environment | When rates are low and expected to rise | When rates are high and expected to fall |
The Bottom Line
For most buyers, a fixed-rate mortgage is the safer and more straightforward choice, especially if you plan to stay in the home for more than 7 to 10 years. An ARM can make sense if you are confident you will move or refinance before the adjustment period kicks in, giving you a lower rate in the meantime. Always plan for the possibility that you may not sell or refinance before the rate adjusts.
Run the Numbers
Use the mortgage calculator to see how each option affects your monthly payment and total cost.
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