ARM vs Fixed-Rate Mortgage
ARMs (adjustable-rate mortgages) start with a lower fixed rate for an initial period (5, 7, or 10 years), then adjust annually thereafter based on a market index. Fixed-rate mortgages keep the same rate for the entire term. The trade is rate certainty (fixed) vs initial savings (ARM). The right choice depends on how long you plan to stay in the home.
ARM (Adjustable-Rate Mortgage)
Lower initial rate that adjusts after the fixed period (5, 7, or 10 years).
Best for: Buyers who plan to sell or refinance before the fixed period ends, or who can absorb rate increases.
Pros
- +Lower initial rate (typically 0.25-0.75% below 30-year fixed)
- +Lower payments for the fixed period
- +Rate caps limit adjustment magnitude
Cons
- −Rate increases after fixed period - payment shock if rates rise
- −Refinancing not guaranteed if your scenario changes
- −Variable monthly payment after adjustment
Fixed-Rate Mortgage (30-Year)
Same rate for the entire 30-year term.
Best for: Long-term homeowners who value rate certainty and stable payments.
Pros
- +Rate locked for life of loan
- +Predictable monthly payment
- +No rate-rise risk
Cons
- −Higher initial rate than ARM
- −No benefit if rates fall (must refinance to capture)
| Field | ARM (Adjustable-Rate Mortgage) | Fixed-Rate Mortgage (30-Year) |
|---|---|---|
| Min FICO | 620+ | 620+ |
| LTV (purchase) | Up to 95% | Up to 97% |
| LTV (cash-out) | Up to 80% | Up to 80% |
| Income docs | Standard | Standard |
| Term | 5/7/10-year fixed, then annual adjustments | 30-year fixed |
| Time to close | 30-45 days | 30-45 days |
Which one should you choose?
- ARM (Adjustable-Rate Mortgage): choose ARM if you'll definitely sell or refinance within 5-7 years AND can absorb a payment increase if plans change.
- Fixed-Rate Mortgage (30-Year): choose 30-year fixed if you plan to stay long-term, value certainty, or are stretched on the payment.
- For a 7-10 year hold horizon, run both. ARM savings over 7 years often beat fixed cost; the math depends on rate gap and adjustment expectations.
Frequently asked questions
How much can my ARM rate adjust?
ARM rate caps limit adjustment: typical structure is 2/2/5 - max 2% adjustment in year 1 of adjustments, max 2% per subsequent year, max 5% lifetime cap above start rate.
Can I refinance an ARM into a fixed-rate?
Yes, anytime - refinancing into fixed is a standard exit. You'll pay closing costs but lock in certainty.
Are 15-year ARMs available?
Rare. Most ARMs are 30-year amortization with the initial fixed period. 15-year products are typically fixed-rate only.
Not sure which fits your scenario?
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Today's mortgage rates
Conventional
5.875%
5.906% APR
FHA
5.375%
5.405% APR
VA
5.375%
5.402% APR
Conv: 80% LTV, 780 FICO. FHA: 96.5% LTV, 680 FICO. VA: 100% LTV, 680 FICO. 30-yr fixed. Your rate may vary.