Fixed Rate or Adjustable Rate: Which Mortgage Fits You?
The short answer
A fixed-rate mortgage keeps the same interest rate for the whole loan, so your principal and interest payment never changes. An adjustable-rate mortgage (ARM) starts with a set rate for a number of years, then can move up or down. Fixed rewards people who stay put. An ARM can fit people who expect to move or refinance before it adjusts.
How each one works
- Fixed rate: common terms are 30 and 15 years. Boring in the best way. Your taxes and insurance can still change, but the loan part stays the same.
- Adjustable rate: you will see names like 5/6 or 7/6. The first number is how many years the starting rate is locked in. After that, the rate adjusts on a set schedule based on a market index, within caps written into your loan.
- Caps matter: ARMs limit how much the rate can rise at the first adjustment, at each later one, and over the life of the loan. Ask to see all three.
Who each one tends to fit
Fixed often fits buyers planning to stay a long time, anyone on a tight or fixed budget, and anyone who sleeps better knowing the payment will not move.
An ARM can fit buyers who expect a job move, a growing family that will upsize, or second-home buyers who do not plan to keep the loan forever. It is a strategy, not a gamble, as long as you plan for the worst-case payment.
Questions to ask before you pick
- How long do I realistically plan to keep this home and this loan?
- What is the highest payment this ARM could ever reach, and could I handle it?
- How does the starting rate compare between the two options today?
- What are the costs if I refinance later?
Frequently asked questions
Can I switch from an ARM to a fixed rate later?
Usually only by refinancing, which depends on your credit, equity and the market at the time. Do not count on it as your only plan.
Are ARMs risky?
They carry rate risk after the fixed period. The caps limit that risk, and knowing your worst-case payment up front takes the mystery out.
As a broker, we can price both options across many lenders side by side. Read what a mortgage broker does, call (469) 414-5554, or visit our Texas branch.
By Kelly Welton, Mortgage Broker (NMLS #314183), Mohave Mortgage Texas Branch. Mohave Mortgage NMLS #1830581 · Texas Branch NMLS #2690682 · Equal Housing Opportunity. General information only, not a commitment to lend or financial advice. Programs, rates and guidelines vary and change.
