Choose a fixed-rate mortgage if you need predictable principal-and-interest payments or expect to keep the home for a long time. Consider an adjustable-rate mortgage (ARM) only if you understand when and how its rate can change, can afford the loan’s maximum permitted payment, and are comfortable with that uncertainty. Don’t count on selling or refinancing before an adjustment.
How the two mortgage types differ
| Feature | Fixed-rate mortgage | Adjustable-rate mortgage (ARM) |
|---|---|---|
| Interest rate | Stays the same for the loan term. | Typically stays fixed for an introductory period, then may rise or fall at scheduled adjustments. |
| Principal-and-interest payment | Remains stable over the loan term. | Can change after adjustments. |
| Predictability | Greater certainty about principal and interest. | Less certainty about future payments and total interest. |
| Potential fit | Borrowers who value predictable payments or expect to keep the home long-term. | Borrowers who understand the terms, can manage the maximum payment, and have a time horizon and risk tolerance that fit the loan. |
| Risk to consider | Taxes, homeowners insurance, and mortgage insurance can still change the total housing payment. | Payments can rise; a planned sale or refinance before an adjustment is not guaranteed. |
These are general loan structures; rates, terms, and costs vary by lender and borrower. For U.S. borrowers, the Consumer Financial Protection Bureau (CFPB) describes the differences in its fixed-rate and adjustable-rate mortgage guide.
Choose based on your budget, plans, and tolerance for uncertainty
When a fixed rate may suit you
- You want a stable principal-and-interest payment that is easier to plan around.
- You expect to keep the home for many years and prefer not to take on the risk of later rate changes.
- A payment increase would strain your budget, even if the initial ARM payment is lower.
When an ARM may be worth considering
- You can afford the highest payment allowed by the loan, not just the introductory payment.
- You understand the adjustment schedule, index, margin, and rate caps in the written terms.
- The loan’s adjustment timeline fits your plans, and you accept that the rate and payment may rise or fall.
An initially lower ARM payment does not guarantee a lower cost over the life of the loan. Avoid choosing one on the assumption that you will sell or refinance before the rate changes. The CFPB cautions: “Don’t assume you’ll be able to sell your home or refinance your loan before the rate changes.” See its guidance on fixed-rate and adjustable-rate mortgages, last reviewed January 14, 2025.
Understand how an ARM’s rate can change
After its introductory fixed period, an ARM generally resets based on an index plus a lender-set margin. The loan’s terms specify when the first adjustment occurs, how often later adjustments occur, and the caps that limit changes. The fully indexed rate is generally the index plus the margin, subject to those caps.
Before comparing ARM offers, ask the lender to explain:
- When the introductory rate ends and how frequently the rate adjusts afterward.
- Which index the loan uses and what margin is added to it.
- The initial adjustment cap, subsequent adjustment cap, and lifetime cap.
- Whether the loan has a rate floor.
- The highest payment the loan could require and how that figure is calculated.
Caps limit rate changes according to the contract; they do not make the introductory payment permanent. CFPB explains what to check in its ARM shopping guidance. Review the Loan Estimate and written loan terms, and ask the lender to clarify anything you cannot interpret.
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Compare written loan offers, not just advertised rates
- Request offers from at least three lenders. CFPB recommends comparing multiple offers rather than relying on a single quote.
- Review each Loan Estimate. Compare the interest rate, APR, points, fees, loan term, monthly principal and interest, and other costs. For an ARM, compare the adjustment terms and maximum payment as well as the introductory rate.
- Assess the full housing payment. Include taxes, homeowners insurance, and mortgage insurance where applicable; these costs can change even when a fixed-rate loan’s principal and interest do not.
- Test affordability against the ARM’s maximum payment. Decide whether that payment fits your budget without relying on a future refinance or sale.
APR is a broader cost measure than the interest rate because it includes charges such as points and fees. But an ARM’s APR does not show its maximum possible interest rate, so do not choose a mortgage by APR alone. CFPB’s Loan Estimate guide explains how to use the form to compare offers.
Independent reader supportYour contribution helps us test, update, and keep practical guides available for everyone.Use historical popularity only as context
CFPB reports that 85–95% of buyers chose fixed-rate loans during 2008–2022, compared with a historical share of 70–75% on the agency’s comparison page. These are dated figures, not a measure of today’s choices or evidence that either mortgage type is better for you. Current lender pricing changes over time, so compare offers available when you shop.
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