When it comes to choosing a mortgage, the type of interest rate structure you select—fixed or adjustable—can have long-term financial implications. If you’re a buyer trying to make the smartest decision for your future, understanding the difference is essential.
This article explains how fixed-rate and adjustable-rate mortgages (ARMs) work, their pros and cons, and how to choose the one that best aligns with your goals in 2025 and beyond.
What Is a Fixed-Rate Mortgage?
A fixed-rate mortgage offers one key feature: predictability.
- Your interest rate stays the same for the entire life of the loan.
- Monthly principal and interest payments remain stable.
- Most common terms: 15, 20, or 30 years.
Best for: Buyers who plan to stay in their home long-term, prefer budgeting stability, and want to lock in today’s rates.
What Is an Adjustable-Rate Mortgage (ARM)?
An adjustable-rate mortgage features a variable interest rate structure:
- It starts with a fixed period (e.g., 5, 7, or 10 years).
- After that, the rate adjusts periodically—usually annually—based on a market index.
- Initial rates are typically lower than fixed-rate options.
Best for: Buyers who expect to move or refinance before the adjustment period begins, or who want to save money early in the loan.
Fixed vs. ARM: Side-by-Side Comparison
| Feature | Fixed-Rate | Adjustable-Rate (ARM) |
| Initial Rate | Higher | Lower |
| Rate Changes | Never | After fixed period |
| Payment Stability | Consistent | Variable after adjustment |
| Ideal For | Long-term homeowners | Short-term homeowners or refinancers |
| Risk Level | Low | Higher (post-adjustment) |
How ARMs Work: A 5/6 ARM Example
Let’s break down a 5/6 ARM:
- “5” = 5 years of a fixed rate
- “6” = Rate adjusts every 6 months after that
- Rate caps limit how much it can adjust at each interval and over the life of the loan
Example: You get a 5/6 ARM at 5.0%. After five years, the rate may rise or fall depending on the market, subject to adjustment caps (e.g., 2% per adjustment, 5% lifetime cap).
How to Choose the Right Mortgage Type
Ask yourself:
- How long do I plan to stay in the home?
- Am I comfortable with potential future payment increases?
- Would I refinance before an ARM adjusts?
- Is locking in peace of mind worth a higher rate?
Fixed-rate loans offer stability and peace of mind.
ARMs offer short-term savings and flexibility.
Our Take at Ensure Lending
There’s no one-size-fits-all answer—your ideal mortgage depends on your lifestyle, financial goals, and risk tolerance. At Ensure Lending, our advisors take time to understand your situation and match you with the product that makes sense today and tomorrow.
Need help comparing your options?
Schedule a free consultation and let our team walk you through fixed vs. adjustable mortgage pros and cons.
