Fixed vs Adjustable Rate Mortgage

Choose the rate type that fits how long you’ll keep the loan.

How ARMs work

An ARM has a fixed teaser period (e.g., 5/6, 7/6, 10/6), then adjusts on a schedule using an index plus a margin, with periodic and lifetime caps.

Pros and cons

• Fixed: Payment stability; best for long-term stays.
• ARM: Lower initial rate; risk of future increases; good for short stays.

Example

$450,000 loan: 30-year fixed 6.5% vs 7/6 ARM 5.9% for first 7 years. ARM saves about $168/month initially but could reset higher; model both in the calculator.

Who should consider which

ARM fits if you’ll sell or refinance within the fixed window; fixed fits if you want predictable payments.

FAQ

• What are caps? Limits on how much the rate can move per adjustment and over the life of the loan.
• Can ARMs adjust down? Yes, if the index falls below your margin.
• Is there a prepayment penalty? Most U.S. owner-occupied loans do not have one, but confirm with your lender.

Test both options in the comparison tool or main calculator.