Fixed vs. Adjustable-Rate Mortgage: Which Should You Choose?

A fixed-rate mortgage locks your interest rate for the whole loan; an adjustable-rate mortgage (ARM) starts lower but can move with the market after an initial fixed period. The choice comes down to a trade between certainty and a lower starting payment — and how long you'll keep the loan.

How each one works

With a fixed-rate loan, your principal-and-interest payment never changes for 15 or 30 years — what you sign is what you pay. An ARM is quoted as something like 5/1 or 7/6: the rate is fixed for the first number of years, then adjusts periodically (annually, or every six months) based on a market index plus a set margin.

The appeal — and the risk — of an ARM

ARMs usually start with a lower rate than fixed loans, so the early payments are cheaper. The risk is what happens after the fixed period: if rates rise, your payment can jump at each adjustment, up to caps set in the loan. You're trading a lower payment now for uncertainty later.

When an ARM can make sense

• You're confident you'll sell or refinance before the fixed period ends (a starter home, a planned move).
• Rates are high now and expected to fall, so you'd refinance into a lower fixed rate later.
• You want lower initial payments and can genuinely afford a higher one if rates rise.

When a fixed rate is the safer bet

If you plan to stay put for the long haul, value a predictable payment, or would be stretched by a higher one, a fixed rate removes the risk entirely. Most buyers choose fixed for exactly this reason — the certainty is worth giving up a slightly lower teaser rate, especially when you can refinance if rates fall.

Read the caps before you sign

Every ARM has adjustment caps — limits on how much the rate can rise at the first adjustment, at each later one, and over the life of the loan (often shown as numbers like 2/2/5). These caps define your worst case. Calculate the payment at the maximum rate and ask whether you could still afford it; if not, the ARM is riskier than it looks.

Compare the payments

Use the mortgage calculator below to compare a fixed loan against an ARM's starting rate — and then run it again at the ARM's maximum possible rate to see your worst-case payment. Seeing both ends of the range is the honest way to decide whether the lower start is worth the uncertainty.