Choosing the right mortgage is an important decision, especially when you’re deciding between a fixed-rate and an adjustable-rate mortgage (ARM). Both loan types have their advantages, but the best choice depends on your financial goals, how long you plan to stay in your home and your comfort with risk. Here’s a breakdown of how these two mortgage types differ and how to decide which might be the better fit.
What Is a Fixed-Rate Mortgage?
A fixed-rate mortgage is exactly what it sounds like: your interest rate stays the same for the entire life of the loan. That means your monthly principal and interest payments remain consistent, no matter what’s happening in the broader economy.
This type of loan is ideal for buyers who plan to stay in their home for many years or want the security of predictable monthly payments. It’s also a good option if you’re budgeting on a tight or fixed income.
Key benefits of fixed-rate mortgages:
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Stable monthly payments
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Protection from rising interest rates
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Long-term peace of mind
However, fixed-rate loans may come with a slightly higher initial interest rate compared to ARMs, especially when rates are low across the board. You’re paying for the peace of mind that your rate won’t change, so in the short term it may cost a bit more.
What Is an Adjustable-Rate Mortgage (ARM)?
An ARM typically starts with a lower interest rate than a fixed-rate loan, but that rate only lasts for a set introductory period, often 5, 7 or 10 years. After that, the interest rate can adjust periodically (usually once a year), depending on market conditions.
For example, a 5/1 ARM means you get a fixed rate for the first 5 years, and then your rate adjusts once per year after that.
Pros of ARMs:
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Lower initial interest rates
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Lower monthly payments early on
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Potential to save money if you sell or refinance before the rate adjusts
Cons of ARMs:
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Monthly payments may increase after the initial period
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Harder to budget long-term
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Risk of significantly higher rates if market rates rise
Fixed vs. Adjustable: Which One Should You Choose?
Your decision depends on your personal circumstances and how long you plan to own the home. Here are a few key factors to consider when deciding.
Consider a fixed-rate mortgage if:
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You’re planning to stay in the home long-term
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You want consistent payments and don’t want to worry about rate changes
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You prefer long-term stability over potential short-term savings
Consider an ARM if:
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You expect to move or refinance before the fixed-rate period ends
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You’re comfortable with potential rate increases in the future
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You want lower payments in the short term and can manage future uncertainty
There’s no universal mortgage that works for everyone. A fixed-rate loan offers long-term predictability, while an ARM can provide short-term savings and flexibility. The right choice comes down to your financial outlook, how long you plan to stay in your home and your risk tolerance. If you’re unsure which path to take, contact trusted lenders who will walk you through your options and help you make an informed decision.
