Choosing the right mortgage is just as important as choosing your dream home. One major decision you’ll have to make is whether to get a fixed-rate mortgage or an adjustable-rate mortgage (ARM).

With a fixed-rate mortgage, your interest rate stays the same throughout the duration of the loan. An ARM, on the other hand, has a rate that changes at set intervals after an initial fixed period.

So, which one is better? It depends. There’s no one-size-fits-all answer. The right choice comes down to your financial situation, future plans, and risk tolerance.

Let’s break down each type of mortgage to help you figure out what option works best for you.

Understanding Fixed-Rate Mortgages

A fixed-rate mortgage locks in your interest rate from the moment you take out the loan until the end of the term.

For example, if you secured a 6.5% fixed-rate mortgage loan, your principal and interest payments will always be based on that rate—no matter how much rates rise (or fall, as many in 2025 hope) in the future. However, your total monthly payment may still change over time if property taxes or insurance costs increase.

Many homebuyers prefer this type of mortgage for its stability and predictability, making it easier to budget and even plan for an early payoff. The biggest advantage is the peace of mind that your rate won’t suddenly spike.

But like any other option, it has its downsides. Fixed-rate mortgage loans often come with higher interest rates than adjustable-rate mortgage loans, especially during the initial years. And if rates drop in the future, you won’t automatically benefit from the lower rates unless you refinance.

Understanding Adjustable-Rate Mortgages (ARM)

An adjustable-rate mortgage offers a low introductory rate for a fixed period before shifting to a floating mortgage rate that adjusts at regular intervals for the remainder of the loan term.

ARMs have specific terms that indicate how long the fixed period is and how often the rate will change afterward.

For instance, a 5/6 ARM on a 30-year loan with a 6% introductory rate means your rate stays the same for the first five years. After that, expect it to adjust every six months based on the financial index, such as the Secured Overnight Financing Rate (SOFR).

While ARMs start with lower mortgage rates, they come with the risk of rising interest rates and higher monthly payments over time. But don’t worry too much! Most ARMs have rate caps that limit how much your interest rate can go up during the first adjustment, the subsequent periods, and over the life of the loan.

To better understand how ARMs work, keep these terms in mind:

• Introductory Period - The specified number of years your interest rate stays fixed, commonly 3, 5, or 7 years.
• Adjustment Frequency - How often your interest rate changes after the fixed period, typically expressed in months or years.
• Index - A financial benchmark, like the Treasury Index, that is used to determine your rate adjustments.
• Margin - A set percentage added to the index to calculate your new rate.
• Rate Caps - A limit on how much your rate can increase during the first adjustment (initial cap), subsequent adjustment periods (periodic cap), and over the life of the loan (lifetime cap).

What’s the Difference?

As you weigh your options, it’s crucial to understand the main differences between fixed- and adjustable-rate mortgages. Take a look at the comparison table below to help you decide which is the better fit for you.

While the lower introductory rate of an ARM may seem attractive compared to a fixed-rate mortgage, it is also important to consider how future rate adjustments could impact your payments.

To understand the cost differences, let’s compare:

a. $400,000 30-year fixed-rate mortgage

b. $400,000 30-year 5/1 adjustable-rate mortgage with an initial cap of 2%, a period cap of 1%, and a lifetime adjustment cap of 5%

Note: These calculations do not include property taxes and insurance costs.

Cost Comparison: Fixed-rate Mortgage vs. Adjustable-rate Mortgage

With an adjustable-rate mortgage, you can save money during the first five years. After that period ends, your rate adjusts every year. If market rates rise, your interest could increase by up to 5%, leading to higher mortgage payments. But it won’t jump all at once—lenders typically cap adjustments at 1-2% per period. If mortgage rates drop, your payments could also go down. And remember, you can always refinance from an ARM to a fixed rate when the time is right to lock in a long-term lower rate and payment.

A fixed-rate mortgage, while initially more costly, offers stability. Your principal and interest payments stay the same for the life of the loan. This makes it a solid choice if you plan to stay in your home for the long haul. But if you’re looking to sell or refinance, ideally before an ARM adjusts, the lower introductory rate could work in your favor.

Which One Is Right for You?

You might wonder which option is better: a fixed- or an adjustable-rate mortgage? The truth is...the right choice depends on your goals and financial circumstances.

A fixed-rate mortgage might be better if:

• You plan to stay in your home for the long haul. A fixed interest rate on your mortgage loan provides stability. You don’t have to worry about your monthly principal and interest increasing. Plus, you can always refinance a home loan if rates drop.

• Mortgage rates are low. Locking in a fixed rate when market rates are low can save you thousands, especially if rates eventually rise.

• You want a lower upfront cost. Fixed-rate mortgages often require lower down payment than ARMs, making them more manageable if you’re working with a tight budget.

• Your risk tolerance is low. If fluctuating interest rates make you uneasy, a fixed-rate mortgage might be just what you need. Your rate won’t change, so you don’t have to stress over rising costs.

An adjustable-rate mortgage might be better if:

• You plan to sell or refinance before the rate adjusts. The lower introductory rate can help you save money in the short term. If you’re planning to move or refinance before the adjustable period begins, you can take advantage of those savings.

• Mortgage rates are high. An adjustable-rate mortgage can initially offer a lower rate than a fixed-rate mortgage. If market rates decline, you can continue benefiting from lower payments or refinance into a fixed-rate mortgage before they increase.

• Your risk tolerance is high. If you can handle potential payment fluctuations, consider getting an adjustable-rate mortgage. You’ll benefit from lower payments if rates are low, and if they rise, you can plan ahead to refinance or sell before it affects your budget.

Key Takeaway

Finding the right mortgage isn’t a one-size-fits-all. What works for others may not be the best fit for you. Choose a loan that aligns with your goals, budget, and future plans.

To make that decision easier, ask yourself:

• How long do I plan to stay in this home?
• How much house payment can I afford?
• Do I plan to move or refinance later?
• Do I prefer stability, or am I open to risk?

Answering these questions will help you figure out which mortgage type fits you best.

Want to see what loan options you qualify for? Check out Refinance.com. Our platform makes it easy to compare lenders and find fixed- or adjustable-rate mortgages that match your financial profile and preferred loan terms.