Fixed-Rate vs Adjustable-Rate Mortgages
When you shop for a mortgage, one of the first decisions you'll face is fixed-rate vs adjustable-rate. Both can be smart choices depending on your situation — the key is understanding how each one behaves over time, not just which one starts with a lower rate.
How a Fixed-Rate Mortgage Works
A fixed-rate mortgage locks in the same interest rate for the entire loan term, usually 15 or 30 years. Your principal-and-interest payment never changes, which makes budgeting simple and protects you completely from rising rates. The trade-off is that fixed rates are often slightly higher than the initial rate on an adjustable loan, since the lender is taking on the interest-rate risk instead of you.
How an Adjustable-Rate Mortgage (ARM) Works
An adjustable-rate mortgage starts with a fixed "teaser" rate for an initial period — commonly 5, 7, or 10 years — and then adjusts periodically based on a market index plus a lender margin. A "5/1 ARM," for instance, has a fixed rate for 5 years, then adjusts once per year afterward. Most ARMs include rate caps that limit how much the rate can jump at each adjustment and over the life of the loan, but your payment can still rise significantly once the fixed period ends.
Pros and Cons of Each
Fixed-rate pros: predictable payments, no exposure to rising rates, simpler long-term budgeting.
Fixed-rate cons: typically a higher starting rate than an ARM, less benefit if rates fall (without refinancing).
ARM pros: lower initial rate and payment, can save money if you sell or refinance before the adjustment period starts.
ARM cons: payment uncertainty after the fixed period, risk of "payment shock" if rates rise.
Which One Fits Your Situation?
A fixed-rate loan tends to fit buyers who plan to stay in the home long-term or who simply want payment certainty. An ARM can make sense if you're confident you'll move, sell, or refinance before the fixed period ends, or if you expect your income to grow enough to absorb a higher future payment. If you're unsure how long you'll stay, the safer default is usually the fixed-rate loan.
Try the Numbers Yourself
Run your loan amount, term, and an assumed rate through the mortgage calculator to see your fixed monthly payment. For any loan — fixed or adjustable — the loan calculator can help you compare how a shorter term or different rate changes your total interest paid over time.