ARM vs fixed-rate mortgage: how to decide

Fixed vs adjustable, defined

A fixed-rate mortgage keeps the same rate for the whole loan, so your principal-and-interest payment never changes. An adjustable-rate mortgage (ARM) starts with a fixed period, often 5, 7, or 10 years, then adjusts on a set schedule for the rest of the term. The intro rate is usually lower than a comparable fixed rate, which is the whole appeal, and also the whole risk.

What happens after the intro period

Once the intro period ends, an ARM’s rate becomes an index (a public benchmark that moves with the market) plus a fixed margin your lender sets. Caps limit how much it can jump at each adjustment and over the life of the loan, but within those caps it can rise meaningfully. If you will still own the home when it starts adjusting, you have to weigh where the rate could land, not just where it starts.

When fixed is worth the premium

For refinancing, the same logic as student loans applies: certainty has value. If you plan to stay in the home long term, the predictability of a fixed rate is often worth a small premium over an ARM’s teaser, because you remove all of the after-intro uncertainty. An ARM can make sense if you are confident you will sell or refinance before the adjustments begin, but that confidence should be real, not hopeful.