ARM vs Fixed Rate Mortgage: Which Is Right for You?

Fixed vs Adjustable: The Core Difference

A fixed-rate mortgage locks your interest rate for the entire loan term — typically 15 or 30 years. Your payment never changes. An adjustable-rate mortgage (ARM) offers a lower initial rate for a fixed period (3, 5, 7, or 10 years), after which the rate resets periodically based on market indexes plus a margin.

The tradeoff is simple: ARMs offer lower initial payments but carry future uncertainty. Fixed rates offer predictability at a higher initial cost. A 5/1 ARM might start at 5.5% vs a 30-year fixed at 6.5%, saving $200/month for the first 5 years — but after that, the rate could rise as high as 8.5%.

When Each Makes Sense

• ARM is better if: You plan to move within the fixed period (5-7 years), rates are high and expected to drop, you need a lower payment to qualify, or you expect higher income later.
• Fixed is better if: You plan to stay 10+ years, you prefer payment certainty, rates are historically low, or you are on a fixed income and cannot absorb payment increases.