Fixed-Rate vs. Adjustable-Rate Mortgage

When you’re buying a home, choosing the right mortgage matters just as much as choosing the right property. Two options you’ll likely come across are fixed-rate mortgages and adjustable-rate mortgages, often called ARMs.

The short answer: a fixed-rate mortgage keeps the same interest rate for the life of the loan. An ARM starts with a set rate for a period of time, then the rate can adjust up or down.

What is a fixed-rate mortgage?

With a fixed-rate mortgage, your interest rate stays the same for the entire loan term. That means the principal and interest portion of your monthly payment won’t change because of rate movements.

This predictability is a big reason many buyers choose a fixed rate. Keep in mind that your total payment can still change if your property taxes or homeowners insurance change.

What is an adjustable-rate mortgage (ARM)?

An ARM typically starts with an initial interest rate for a set period, often several years. After that, the rate can adjust based on the terms of your loan, so your monthly payment could go up or down.

ARMs are usually described with two numbers, like a 5/6 ARM. The first number is how many years the initial rate lasts. The second tells you how often the rate can adjust after that, which in this example is every six months. Most ARMs also include caps that limit how much the rate can change.

Fixed-rate vs. ARM: what’s the difference?

Which mortgage is right for me?

There isn’t one mortgage that’s right for every buyer. A fixed rate may appeal to you if you value long-term payment stability. An ARM may be worth exploring if your plans and finances line up with its initial rate period and you’re comfortable with possible future adjustments.

Especially in today’s market, look beyond the starting rate. Your monthly payment, future plans, overall budget and comfort with payment changes all matter.