Fixed-Rate or Adjustable Mortgage? Weighing Your Options

Answer

When shopping for a home loan, you’ll encounter two primary types: a fixed-rate mortgage and an adjustable-rate mortgage (ARM). Understanding how they differ helps you choose the best fit for your budget, timeline, and risk tolerance.

A fixed-rate mortgage locks in the same interest rate and monthly payment for the entire loan term—commonly 15 or 30 years. This predictability makes budgeting easy, since principal and interest never change. Fixed rates tend to start slightly higher than ARMs, but you avoid the risk of rising rates later on.

• Stability: Your payment remains constant regardless of market swings.
• Long-term planning: Ideal if you plan to stay in your home for many years.
• Slightly higher initial rate: Compared with ARMs, you may pay more up front.

In contrast, an adjustable-rate mortgage typically offers a lower introductory rate—often fixed for 3, 5, 7, or 10 years—before adjusting periodically based on an index (like the LIBOR or Treasury) plus a margin. After the initial period, your rate and payment can rise or fall at scheduled intervals.

• Lower initial cost: You benefit from a teaser rate that can save on interest early.
• Rate caps: ARMs include limits on how much your rate can change per adjustment and over the loan’s life.
• Payment uncertainty: If rates climb, your monthly payment can increase significantly.

Choosing between these mortgages comes down to your financial goals. If you value predictability and plan to hold your loan long-term, a fixed rate offers peace of mind. If you expect to refinance, sell, or see rates drop within a few years, an ARM’s lower starting rate may work in your favor.

Before committing, compare Loan Estimates side by side and run scenarios for future rate changes. It’s advisable to consult a licensed mortgage professional to tailor these options to your unique situation and lock in the loan structure that aligns with your homeownership timeline.