When buying a home, one of the most important decisions you’ll make is choosing the right type of mortgage. Two of the most common options are fixed-rate mortgages (FRMs) and adjustable-rate mortgages (ARMs). Each has its own benefits and risks, depending on your financial situation and long-term plans.
🔒 Fixed-Rate Mortgage (FRM)
A fixed-rate mortgage comes with an interest rate that remains the same for the entire term of the loan—typically 15, 20, or 30 years. This means your monthly principal and interest payments stay consistent, making it easier to budget over time.
✅ Advantages:
Predictable monthly payments.
Long-term protection from rising interest rates.
Ideal for buyers planning to stay in their home long-term.
⚠️ Considerations:
Typically starts with a higher interest rate compared to ARMs.
Less flexibility if interest rates drop (you’ll need to refinance to take advantage).
🔄 Adjustable-Rate Mortgage (ARM)
An adjustable-rate mortgage features an interest rate that changes periodically after an initial fixed-rate period (e.g., 5 years in a 5/1 ARM). After that, the rate adjusts annually based on a benchmark index plus a margin.
✅ Advantages:
Lower initial interest rate than fixed-rate loans.
Potential for lower payments if interest rates decrease.
Suitable for short-term homeowners or investors.
⚠️ Considerations:
Payments can increase after the initial fixed period.
Rate changes depend on market conditions, making budgeting less predictable.
🧮 Fixed vs. Adjustable: Quick Comparison
| Feature | Fixed-Rate Mortgage | Adjustable-Rate Mortgage |
|---|---|---|
| Interest Rate | Fixed | Varies after intro period |
| Monthly Payment | Consistent | May increase or decrease |
| Initial Rate | Higher | Lower |
| Best For | Long-term buyers | Short-term or flexible buyers |
| Risk Level | Low | Medium to high |
🧠 Which One Should You Choose?
Choose a Fixed-Rate Mortgage if you want stability and plan to live in your home for many years.
Choose an Adjustable-Rate Mortgage if you want lower initial payments and plan to move or refinance before the rate adjusts.
Your financial goals, job stability, market outlook, and how long you plan to stay in your home should all influence your decision.
📚 Sources
Investopedia – Fixed vs. Adjustable-Rate Mortgage: What’s the Difference?
Investopedia – Adjustable-Rate Mortgage (ARM): What It Is and Different Types
Investopedia – Fixed-Rate Mortgage: How It Works, Types, vs. Adjustable Rate
