Fixed vs. adjustable-rate mortgages
A fixed-rate mortgage locks your principal-and-interest payment for the whole term. An adjustable-rate mortgage trades that certainty for a lower starting rate that can move later. The right choice depends mostly on how long you will keep the loan.
Last reviewed August 2026
How an ARM works
A 7/6 ARM is fixed for 7 years, then adjusts every 6 months. At each adjustment the new rate is a published index — often SOFR — plus a fixed margin set at closing, subject to caps. A common 2/1/5 cap structure means the rate can move at most 2 points at the first adjustment, 1 point at each later one, and 5 points above the start rate over the life of the loan.
When an ARM fits
- You are confident you will sell or refinance before the fixed period ends — a known job move, a starter home, a plan to pay it off from a future windfall.
- Fixed rates are high and expected to fall, and you would rather not pay to refinance later.
- You can comfortably afford the payment at the maximum capped rate, not just the teaser rate.
If none of those hold, the 30-year fixed is the safer default. Its certainty is worth the slightly higher starting rate for most buyers, and you can always refinance if rates drop.
Terms in this guide
- Adjustable-rate mortgage (ARM) — A mortgage whose interest rate is fixed for an introductory period — commonly 5, 7, or 10 years — then adjusts periodically against a published index plus a margin. Payments can rise or fall after the fixed period, subject to per-adjustment and lifetime caps.
- Fixed-rate mortgage — A mortgage whose interest rate — and therefore whose principal-and-interest payment — never changes for the entire term. The 30-year and 15-year fixed are the two most common forms in the U.S.
- Rate cap — The limit on how much an adjustable-rate mortgage's rate can move. A 2/2/5 structure means at most 2 points at the first adjustment, 2 points at each later adjustment, and 5 points above the start rate over the life of the loan.
- Index rate — The published benchmark an adjustable-rate mortgage tracks — commonly SOFR or the Constant Maturity Treasury. After the fixed period, your rate resets to the current index plus a fixed margin, within the loan's caps.
- Margin — The fixed percentage a lender adds to the index rate to set an adjustable-rate mortgage's rate after the fixed period. The margin is disclosed up front and does not change over the life of the loan.