Fixed vs. Adjustable Rate Mortgages

What Is a Fixed-Rate Mortgage?

A fixed-rate mortgage is exactly what the name suggests: the interest rate stays the same for the entire life of the loan. Whether you choose a 15-year or 30-year term, your principal and interest payment will never change from the first month to the last. This is the most popular type of mortgage in the United States, and for good reason.

With a fixed-rate mortgage, your monthly payment is predictable and easy to budget around. If you lock in a rate of 6.5% today, you will still be paying 6.5% in year 20, regardless of what happens in the broader economy. The only things that can change your total monthly payment over time are adjustments to property taxes and homeowners insurance, which are typically escrowed into your payment.

Fixed-rate mortgages are available in a variety of terms. The 30-year fixed is the most common, offering the lowest monthly payment spread across three decades. The 15-year fixed offers a lower interest rate and builds equity much faster, but comes with a higher monthly payment. Some lenders also offer 20-year and 25-year terms that split the difference.

What Is an Adjustable-Rate Mortgage?

An adjustable-rate mortgage (ARM) starts with a fixed interest rate for an initial period, after which the rate adjusts periodically based on a market index. The most common ARM structures are the 5/1 ARM, 7/1 ARM, and 10/1 ARM. The first number represents how many years the initial fixed rate lasts, and the second number indicates how often the rate adjusts after that.

For example, a 7/1 ARM gives you a fixed rate for the first seven years. After that initial period, the rate adjusts once per year based on a benchmark index (such as the Secured Overnight Financing Rate, or SOFR) plus a margin set by the lender. If the index goes up, your rate goes up. If it goes down, your rate goes down.

ARMs include built-in protections called rate caps that limit how much the rate can change. There are typically three caps: an initial adjustment cap (how much the rate can change at the first adjustment), a periodic cap (how much it can change at each subsequent adjustment), and a lifetime cap (the maximum the rate can ever reach over the life of the loan). A common cap structure is 2/2/5, meaning the rate cannot increase more than 2% at the first adjustment, 2% at each subsequent adjustment, and 5% total over the life of the loan.

The key advantage of an ARM is that the initial fixed rate is usually lower than what you would get on a comparable fixed-rate mortgage. This lower starting rate means a lower monthly payment during the initial period.

Pros and Cons Comparison

Here is a side-by-side look at the advantages and disadvantages of each mortgage type to help you evaluate which one aligns with your goals.

Factor	Fixed-Rate Mortgage	Adjustable-Rate Mortgage
Interest Rate	Higher initial rate, never changes	Lower initial rate, adjusts after fixed period
Monthly Payment	Stable and predictable for life of loan	Lower initially, may increase or decrease later
Risk Level	Low — no payment surprises	Higher — future payments are uncertain
Best For	Long-term homeowners who value stability	Shorter-term owners or those expecting income growth
Rate Environment	Ideal when rates are low and you want to lock in	Useful when rates are high and expected to drop
Early Payoff / Refinance	You may overpay if you sell or refinance early	You benefit from the lower rate during the fixed period

When Does Each Make Sense?

A fixed-rate mortgage makes the most sense when:

• You plan to stay in the home for more than 7 to 10 years.
• You value the certainty of a predictable payment and want to budget with confidence.
• Current interest rates are historically low and you want to lock in that rate for the long term.
• You are risk-averse and do not want to worry about potential rate increases in the future.

An adjustable-rate mortgage makes the most sense when:

• You plan to sell or refinance before the initial fixed period ends. If you know you will move within five to seven years, a 5/1 or 7/1 ARM lets you take advantage of the lower rate without facing the adjustment period.
• Interest rates are currently high and widely expected to decrease. An ARM allows you to benefit from falling rates without refinancing.
• You want to maximize your purchasing power. The lower initial rate on an ARM may allow you to qualify for a higher loan amount or afford a larger payment toward principal.
• You expect your income to increase significantly in the coming years, making potential future payment increases manageable.

How to Decide

The right choice depends on your personal financial situation, your timeline for staying in the home, and your tolerance for risk. There is no universally correct answer, and what works perfectly for one buyer may be wrong for another.

Start by asking yourself three key questions:

1. How long do I plan to live in this home? If you are confident you will stay for 10 or more years, a fixed rate provides peace of mind. If you expect to move within five to seven years, an ARM could save you money.
2. How comfortable am I with uncertainty? If the idea of a fluctuating payment causes you stress, a fixed-rate mortgage eliminates that concern entirely. If you are comfortable with some variability and understand the caps, an ARM may be worth considering.
3. What is the current rate environment? Compare the rates side by side. If the difference between a 30-year fixed and a 7/1 ARM is small, the stability of the fixed rate may be worth the slightly higher cost. If the difference is significant, the ARM savings become more compelling.

The best way to make this decision is to run the numbers for your specific situation. Use our mortgage payment calculator to compare monthly payments, or explore our full range of loan programs to see all your options.

And if you want personalized guidance, Adam Styer and The Styer Team are always happy to walk you through the math and help you choose the mortgage that best fits your goals. Reach out anytime — we are here to help.