One of the biggest choices borrowers may face is whether to choose a fixed-rate mortgage or an adjustable-rate mortgage. Both options can make sense depending on your goals, timeline, risk tolerance, and financial profile.
What is a fixed-rate mortgage?
A fixed-rate mortgage has an interest rate that stays the same for the life of the loan. This means the principal and interest portion of the monthly payment remains consistent, although taxes, insurance, and HOA dues may still change over time.
What is an adjustable-rate mortgage?
An adjustable-rate mortgage, or ARM, typically starts with an initial fixed-rate period. After that period ends, the interest rate may adjust based on the loan terms and market index. This can cause the monthly payment to increase or decrease.
Not sure which mortgage structure may fit your goals?
Common ARM examples
- 5/6 ARM
- 7/6 ARM
- 10/6 ARM
- 5/1 ARM
- 7/1 ARM
- 10/1 ARM
The first number usually refers to the initial fixed-rate period. The second number refers to how often the rate may adjust after the fixed period ends.
When a fixed-rate mortgage may appeal to borrowers
- You want long-term payment stability
- You plan to stay in the home for many years
- You prefer predictability
- You want protection from future rate increases
When an ARM may appeal to borrowers
- You may sell or refinance before the adjustment period
- You want to compare lower initial payment options
- You are comfortable with potential payment changes
- You understand the adjustment terms and caps
Questions to ask before choosing
- How long do I plan to keep the home?
- How much payment change can I handle?
- What happens after the fixed period ends?
- Are there rate caps?
- Could refinancing later be uncertain?
- Which option best fits my risk tolerance?