How Do Fixed- & Adjustable-Rate Mortgages Compare?
Mortgages come in all different shapes and sizes with different terms, conditions, benefits, and more. Here we compare fixed- and adjustable-rate mortgages and the pros and cons for each.
When shopping for a home loan, one of the most important decisions you’ll make is choosing between a fixed- or adjustable-rate mortgage (ARM). Understanding how each option works can help you select the option that best fits your goals and budget.
Let’s take a closer look at the similarities and key differences.
What’s A Fixed-Rate Mortgage?
A fixed-rate mortgage is a type of home loan with an interest rate that remains constant for the entire loan term, meaning the monthly principal and interest payment won’t change.
Key Features:
- Predictable monthly payments
- Rate never changes, even if market rates go up
- Available in various terms, commonly 15, 20, or 30 years
Best For:
Those who plan to stay in their home long term and prefer stable payments without worrying about future rate increases.
What’s An ARM?
An adjustable-rate mortgage is a loan type with an interest rate that fluctuates over time. Typically, ARMs offer a lower initial interest rate for a set period (often 5, 7, or 10 years), followed by rate adjustments at regular intervals.
For example, with a 10/10 ARM, the initial interest rate is fixed for the first 10 years and then adjusts every 10 years for the remainder of the loan.
Key Features:
- Lower initial interest rate compared to fixed-rate loans
- Interest rate may increase or decrease after the set period
- Adjustments are based on market factors
Best For:
Homebuyers who plan to move, refinance, or pay off the loan before the fixed-rate period ends.
Buying A Home
Homeownership can seem like a never-ending journey. Let us help you navigate everything from buying and selling a home to understanding mortgage products and refinancing.
ARMs vs. Fixed-Rate Mortgages
Both adjustable- and fixed-rate mortgages can help you achieve homeownership, but they work differently when it comes to interest rates and long-term costs. Let’s explore their similarities and where they diverge.
What They Have In Common
- Loan Purpose: Both options are used to finance the purchase or refinance of a home.
- Repayment Term: Available in various terms – such as 15, 20, or 30 years.
- Qualification: Similar requirements for credit, income, and down payment.
- Costs: Either may come with closing costs and other fees.
Key Differences:
| Feature | Adjustable-Rate Mortgage | Fixed-Rate Mortgage |
| Interest Rate | Starts fixed, then adjusts at set intervals over time | Stays the same for the life of the loan |
| Initial Rate | Typically lower during the fixed period | Usually higher than the starting ARM rate |
| Monthly Payments (Principal & Interest) | May increase or decrease after the fixed period | Stays the same every month |
| Long-Term Cost | May cost less if you sell or refinance before the rate adjusts | May cost more if market rates fall |
| Best For | Short-term stays, lower upfront payments | Long-term stability and budgeting |
ARM vs. Fixed-Rate Mortgage Calculator
Compare monthly payments for these two loan types to determine the best option for you.
Which One Is Right For You?
Choosing between an adjustable- and fixed-rate mortgage depends on your financial situation, long-term goals, and risk tolerance.
Ask yourself:
- How long do I plan to stay in the home?
- Do I expect my income to go up over time? If not, can I handle a possible increase in payments?
- Am I comfortable with the uncertainty of a changing rate?
- What other financial obligations do I expect to have during the life of the loan?
- What are mortgage rates predicted to do in the next five to ten years?
If stability and peace of mind are your top priorities, a fixed-rate mortgage may be the better choice. If you’re buying a starter home or expect your income to grow in the coming years, an ARM might make sense – especially with a lower starting rate.
Feel Confident On Your Homebuying Journey With A+FCU
Choosing between an adjustable- and fixed-rate mortgage is an important decision – and you don’t have to make it alone. Whether you’re looking for predictable payments or the flexibility of a lower initial interest rate, A+FCU is here to guide you every step of the way.
Our award-winning Mortgage Team will walk you through your options, answer your questions, and help you find the loan that aligns with your goals and budget. With competitive rates, A+ personalized service, and expert support, you can feel confident in your next move.
Ready to start? Connect with us today and take the next step toward homeownership with A+FCU.
Apply For A Mortgage
Take the stress out of homebuying – get the mortgage you need at a great rate and with lower fees.
Related Articles
How Much Equity Do You Need To Refinance?
Learn how much equity is needed to refinance, explore loan options, and familiarize yourself with key requirements to make the best mortgage refinancing decision.
How To Use A Home Equity Line Of Credit (HELOC)
Learn how a HELOC works, what you can use it for, and what to consider before borrowing against your home’s equity.
Adjustable-Rate Mortgage: What Is It & How Does It Work?
Learn how an Adjustable-Rate Mortgage works, what makes it different from a fixed-rate mortgage, and when it could be a smart choice for your financial goals.