Predictability or potential savings?
A fixed-rate mortgage locks your interest rate for the entire loan term (typically 15 or 30 years). An adjustable-rate mortgage (ARM) offers a lower introductory rate for a set period (3, 5, 7, or 10 years), after which the rate adjusts periodically based on market conditions.
The naming convention tells you the terms: a "5/1 ARM" has a fixed rate for 5 years, then adjusts every 1 year. A "7/6 ARM" is fixed for 7 years, then adjusts every 6 months. ARMs have rate caps that limit how much the rate can increase per adjustment and over the life of the loan.
Best For
People who plan to stay in their home long-term (7+ years), value payment predictability, or are buying when rates are relatively low.
Best For
People who plan to move or refinance within 5–7 years, expect rates to fall, or want the lowest possible initial payment.
| Factor | Fixed-Rate Mortgage | Variable/Adjustable Rate (ARM) |
|---|---|---|
| Initial Rate | Higher (current market rate) | Lower (discounted introductory rate) |
| Rate Changes | Never — locked for entire term | Adjusts after intro period (3/5/7/10 years) |
| Payment Predictability | 100% predictable | Unpredictable after intro period |
| Risk Level | Low — no rate risk | Higher — rate can increase |
| Best When Rates Are | Low (lock in the low rate) | High (benefit from future decreases) |
| Ideal Stay Duration | 7+ years | 3–7 years |
In most cases, a fixed-rate mortgage is the safer and better choice — especially if you plan to stay in your home for more than 7 years. The predictability is worth the slightly higher initial rate. An ARM makes sense only if you're confident you'll sell or refinance before the introductory period ends, or if current fixed rates are unusually high and you expect them to fall. Never take an ARM just because you can't afford the fixed-rate payment — that's a recipe for financial trouble.