Fixed-Rate vs. Adjustable-Rate: The Real Difference
A fixed-rate mortgage locks in the same interest rate for the entire loan term, so your principal and interest payment never changes. An adjustable-rate mortgage (ARM) typically starts with a lower rate for an initial period — often 5, 7, or 10 years — before adjusting periodically based on market conditions. The appeal of an ARM is a lower starting payment; the tradeoff is uncertainty about what your rate and payment will be once the fixed period ends.
Which one makes sense depends largely on how long you plan to stay in the home:
- If you plan to sell or refinance before the ARM’s fixed period ends, an ARM can save money upfront.
- If you plan to stay long-term, a fixed rate offers payment stability and protection against future rate increases.
- If rates are historically low when you’re buying, locking in a fixed rate is often the safer bet regardless of your timeline.
Whichever option you’re considering, run both scenarios through our mortgage calculator to compare the monthly payment difference directly. If you’re unsure what rate to expect for either option, our article on how mortgage interest rates are determined explains the main pricing factors.