| Feature | Fixed-Rate Mortgage | Adjustable-Rate Mortgage (ARM) |
|---|---|---|
| Interest rate | Same for the entire term | Fixed for intro period (5/7/10 yr), then resets |
| Starting rate | Higher than ARM intro rate | Lower than 30-year fixed (often by 0.5-1.5%) |
| Payment stability | 100% predictable | Changes after intro period |
| Best loan term | 15 or 30 years | 30-year amortization with adjustable rate |
| Reset schedule | N/A | Every 6 months after intro (most common) |
| Rate caps | N/A | Initial / periodic / lifetime caps protect against runaway resets |
| Best for | Long-term homeowners, retirees | Short-term homeowners, refinance candidates |
| Risk | None (rate locked) | Future payment shock if rates rise |
The complete picture
Fixed-rate mortgages give you the same interest rate and monthly principal-and-interest payment for the entire loan term — 15, 20, or 30 years. The certainty makes budgeting easy and protects you from rising interest rates. The tradeoff is you pay a premium versus the starting rate of an ARM.
Adjustable-rate mortgages start with a fixed rate for 5, 7, or 10 years (commonly written as 5/6 ARM, 7/6 ARM, 10/6 ARM where the second number is months between resets), then adjust based on a market index plus a fixed margin. Modern ARMs have rate caps that limit how much your rate can rise at each reset and over the loan's life.
ARMs make sense when the intro-period rate discount is meaningful (1%+ below fixed) and you're confident you'll sell or refinance before the intro period ends. They're particularly attractive in high-rate environments where the intro rate is significantly below fixed-rate alternatives. Run the math on both: a 7/6 ARM at 5.5% vs a 30-year fixed at 7% could save $400/month — meaningful if you only plan to stay 5-6 years.
Frequently asked questions
Are ARMs as risky as they were in 2008?+
No. Post-2008 ARMs are fully underwritten at the higher-payment scenario (typically the lifetime cap or 5-year cap), so borrowers must qualify even if the rate adjusts up. The teaser-rate-with-payment-shock products of the 2000s are gone. Modern ARMs are legitimate products, just understand the reset math.
What is a 7/6 ARM?+
A 7/6 ARM has a fixed rate for the first 7 years, then adjusts every 6 months for the remaining 23 years of the 30-year term. The adjustment is the underlying index (typically SOFR) plus the margin set by the lender, subject to caps.
What if interest rates fall after I take an ARM?+
Your rate will reset lower at the next adjustment, reducing your payment. ARMs benefit when rates fall, which is the inverse risk profile of fixed-rate mortgages.
Can I refinance an ARM?+
Yes. You can refinance an ARM to a fixed-rate mortgage at any time. Many borrowers take an ARM with the explicit plan to refinance to fixed-rate when their financial situation strengthens or when fixed rates drop.