Fixed or adjustable? How to choose a mortgage rate

28 Oct 2026 · 4 min read

The short version

  • A fixed rate keeps your principal-and-interest payment the same for the whole loan.
  • An adjustable rate usually starts lower, then can rise or fall after the introductory period.
  • The right choice depends on how long you will stay and what payment you could handle at the worst case.

How a fixed-rate mortgage works

With a fixed-rate loan, your interest rate is set when you close and stays there. Your principal-and-interest payment is the same in year one and year thirty. Property taxes and homeowners insurance can still change, so your total monthly cost may move even though the loan payment does not.

Fixed loans usually come in 15-year and 30-year terms. A shorter term has a higher monthly payment but costs far less interest over time.

How an adjustable-rate mortgage works

An adjustable-rate mortgage, or ARM, has a fixed introductory period, then the rate can change on a schedule. In a 5/6 ARM, the rate is fixed for five years and then can adjust every six months. Older 5/1 loans adjust once a year.

Caps limit how far the rate can move. A common structure allows up to 2 percentage points at the first adjustment, 2 points at each later adjustment, and 5 points over the life of the loan. Always ask for the exact caps in writing.

What the difference looks like in dollars

Here is a simple example with made-up rates. On a $400,000 loan, a 30-year fixed rate of 6.5% means a payment of about $2,530 a month. An ARM starting at 5.75% would begin at about $2,335, roughly $195 a month less.

Now suppose the ARM resets after five years to 7.75%. The balance by then would be around $371,000, and the new payment would be about $2,800. That is more than the fixed loan would have cost, and it could rise further under the caps.

Questions that decide it

  • How long will you realistically stay in the home? If you are likely to sell or refinance within the introductory period, an ARM can save money. Plans change, though.
  • Could you afford the payment at the highest rate the caps allow? If the answer is no, a fixed rate is the safer choice.
  • Is your income likely to grow, or is your budget tight already?
  • Are you counting on refinancing later? Refinancing depends on future rates, your credit and your home value, so it is never guaranteed.

How we help you compare

We put both options side by side in writing: the starting payment, the worst-case payment, the total cost over the time you expect to stay, and the fees on each. Then the decision is yours, with the numbers in front of you.