Fixed-Rate vs Adjustable-Rate Mortgage: Which Is Right For You?

What’s the Difference Between Fixed-Rate and Adjustable-Rate Mortgages?

When buying a home, one of the most important financial decisions you’ll make is choosing your mortgage type. The two main options are fixed-rate and adjustable-rate mortgages (ARMs).

Fixed-Rate Mortgage

A fixed-rate mortgage keeps the same interest rate and monthly payment throughout the life of the loan. Whether you choose a 15-year or 30-year term, your rate stays the same, making your monthly payment predictable.

Pros and Cons of Fixed-Rate Mortgages

The biggest advantage of a fixed-rate mortgage is stability. You always know what your principal and interest payment will be. This helps with budgeting and protects you from rising interest rates in the future. It’s a good choice if you plan to stay in the home for a long time or want peace of mind with consistent payments.

On the downside, fixed-rate loans usually start with higher interest rates compared to ARMs. That means you’ll likely pay more in the early years, especially if rates drop later and you don’t refinance. But for many buyers, the cost is worth the security it offers.

Adjustable-Rate Mortgage (ARM)

An adjustable-rate mortgage, on the other hand, starts with a lower interest rate that remains fixed for a set period—usually 5, 7, or 10 years. After that, the rate adjusts periodically based on the market, which can cause your monthly payment to go up or down.

Pros and Cons of Adjustable-Rate Mortgages (ARMs)

ARMs often start with a lower rate than fixed mortgages, which can lead to significant savings early on. If you plan to move or refinance before the rate adjusts, you could benefit from those lower payments without ever seeing a rate hike. This makes ARMs attractive for buyers who expect short-term ownership or anticipate income growth in the near future.

The risk with an ARM is that your rate can rise after the initial fixed period. If interest rates increase, so will your monthly payment. That can put pressure on your budget, especially if you weren’t prepared for the change. Rate caps limit how much your loan can increase, but the unpredictability is something every buyer should take seriously.

How Do I Know Which Mortgage is Right for Me?

Ask yourself how long you plan to stay in the home. If you expect to live there for 10 years or more, a fixed-rate mortgage often makes more sense. You’ll lock in a stable payment and avoid the risks of rising interest rates. But if you’re buying a starter home or know you’ll relocate within a few years, the lower initial rate of an ARM could save you money. Just make sure you understand the terms and how the adjustment works. Look at the adjustment frequency, rate caps, and the worst-case scenario if rates increase.

Common Questions About Fixed and Adjustable Mortgage

Do First-Time Buyers Usually Choose Fixed or Adjustable?
Most first-time buyers lean toward fixed-rate loans because they value consistency and don’t want to worry about market changes. That’s especially true if they’re buying on a tight budget. But some buyers with higher incomes or short-term plans may benefit from an ARM. There’s no universal answer, it depends on your financial goals, how long you’ll stay in the home, and your comfort with risk.

What Happens if I Get an ARM and Rates Skyrocket?
If your rate adjusts upward, your monthly payment will increase. The good news is most ARMs have caps that limit how much your rate can rise at each adjustment and over the life of the loan. Still, a significant rate jump could make your mortgage unaffordable if your income hasn’t grown to match. That’s why ARMs work best for buyers who have flexibility, either with plans to sell or refinance before the adjustment period, or with strong financial cushions.

Can I Switch from One Type of Mortgage to Another?
Yes, you can refinance your mortgage down the road. If you start with an ARM and later want a fixed rate, refinancing is an option, as long as you qualify based on income, credit, and home equity. The reverse is also true. But refinancing comes with costs, so it’s not always a perfect solution. Think ahead and choose a mortgage that fits both your current situation and your future plans.

Which Mortgage Offers Better Long-Term Value?
A fixed-rate mortgage offers better long-term protection, especially if rates rise. It keeps your payment consistent and makes budgeting easier over time. An ARM might offer better short-term value with a lower starting rate, but only if you have a clear exit strategy or a plan to handle higher payments later. Talk with a lender to run the numbers for both options based on your budget, goals, and timeline.

Both fixed and adjustable-rate mortgages can be good options depending on your needs. The key is to understand how each loan works and choose the one that fits your financial situation and how long you plan to keep the home.