ARM vs. Fixed-Rate Mortgage
A complete guide—with an interactive calculator—to help you decide between an adjustable-rate mortgage (ARM) and a fixed-rate mortgage.
Simple ARM vs. Fixed-Rate Calculator
Compare a fixed-rate loan to a hybrid ARM with caps. Results update as you change the inputs. The ARM payment projection is a simplified model—actual adjustments depend on your note, index, margin, and servicing rules.
Key takeaways
- Fixed-rate: Same interest rate and principal-and-interest payment for the entire term; highest stability.
- ARM: Lower introductory rate for a set period (e.g., 5, 7, or 10 years), then adjusts based on an index + margin, limited by caps.
- Best use cases: Fixed-rate for long-term stability; ARM when you plan to move or refinance before adjustments—or when initial ARM pricing is materially lower.
- Risks: With an ARM, future rates are uncertain; payment could rise. Refinancing later is not guaranteed.
What is a fixed-rate mortgage?
A fixed-rate mortgage locks the interest rate and principal-and-interest payment for the entire term (commonly 30 or 15 years). Budgeting is simpler because the P&I never changes. Taxes, insurance, and HOA dues may still change over time.
- Popular terms: 30-year (lower payment, more total interest) and 15-year (higher payment, much less total interest).
- Great for buyers staying in the home long term or who prefer certainty over initial price.
What is an adjustable-rate mortgage (ARM)?
A hybrid ARM fixes the rate for an initial period (e.g., 5, 7, 10 years), then adjusts at a set frequency (e.g., every 6 or 12 months). The new rate is generally the index + margin, limited by caps that restrict how much the rate can change.
Key ARM terms
- Structure: Written like 5/6, 7/6, or 10/6—first number is the fixed years; second is months between adjustments.
- Index & margin: Index is a market benchmark; margin is added to get the fully indexed rate after the intro period.
- Caps: Often shown like
2/1/5(first adjustment / periodic / lifetime). - Recast: At each adjustment, the payment is reset to amortize the remaining balance over the remaining term at the new rate.
ARM vs. Fixed: side-by-side
| Factor | Fixed-Rate | ARM |
|---|---|---|
| Initial interest rate | Usually higher than ARM at the same time | Often lower during the intro period |
| Payment changes | None on P&I | May change at each adjustment after the intro period |
| Risk level | Low (rate risk removed) | Medium to high (rate & payment risk) |
| Best for | Long-term owners; stability seekers | Shorter time horizon; plan to move/refi |
Which option is right for you?
- Pick fixed-rate if you’ll keep the home long term, prefer predictability, or want to avoid rate surprises.
- Consider an ARM if you expect to move or refinance before adjustments—or if the initial ARM pricing is meaningfully lower and fits your risk tolerance.
- Don’t assume you can refinance later: market rates, your income/credit, and home value can change.
Frequently asked questions
Is an ARM or fixed-rate riskier?
ARMs carry rate and payment risk after the intro period. Fixed-rate loans keep the same P&I for the whole term.
Are ARMs harder to qualify for?
Qualification rules vary by program and investor, but most well-qualified borrowers can qualify for either. Lenders may stress-test ARMs for higher payments.
Can I switch from an ARM to a fixed rate later?
Yes—by refinancing, subject to market conditions and your profile at the time.