Is a fixed rate or adjustable rate mortgage best for you? There’s no cut and dry response to this common question. However, with more information and our mortgage specialists' support, you can make an informed decision regarding the best option for you. 

Fixed Rate Mortgage

A fixed-rate mortgage guarantees a fixed interest rate over the life of your loan as long as you don’t refinance it. 

These loans are typically available over 15 or 30-year terms. A 15 year long will boast a higher monthly payment, but you’ll pay less in interest over the life of the loan. On the other hand, a 30-year mortgage is the opposite. You’ll pay more interest over your loan; however, your monthly payment will be less. 

Often, you’ll find that the shorter your term, the lower the interest rate you can secure as well. 

Here are some of the pros

  • Because of your predictable interest rate, your monthly payment remains the same
  • A predictable monthly payment can make it easier to budget
  • It’s a simple financing method similar to purchasing a vehicle or getting a personal loan, so most are familiar with what to expect

Here are some of the cons

  • If interest rates fall, you can’t take advantage without refinancing your mortgage
  • Interest rates are generally higher than what you’d get with an adjustable rate mortgage

Adjustable Rate Mortgage

An adjustable rate mortgage (ARM) comes with an adjustable interest rate over your loan. The rate will typically start low, before adjusting years later, depending on the current interest rate. 

Here are some of the pros:

  • You are more likely to qualify for a more expensive home since the initial mortgage rate is lower when qualifying
  • You can take advantage of lower interest rates without refinancing your mortgage
  • If you don’t plan to remain in your home for an extended period of time, this is a more expensive route since you can lock in a lower interest rate initially

Here are some of the cons:

  • Interest rates can adjust significantly while you have your loan making it challenging to budget for your monthly mortgage
  • The concept of an adjustable rate mortgage and the terminology associated with it can be more difficult to understand

How to choose a fixed rate vs. adjustable rate mortgage

If the pros and cons of these options don’t point you in the right direction, here are some additional considerations to keep in mind that can help you make your decision. 

Length of homeownership

How long you plan to live in your home can make a considerable difference in which option is best for you. 

When to choose ARM:

  • If you don’t plan to live in the home long, specifically, if you’ll be selling your home before the adjustable-rate period begins, an ARM can save you significantly because you’re able to lock in a reasonable interest rate before the rates start to adjust

When to choose fixed:

  • If you plan to remain in your home longer than when the rates begin to adjust, a fixed interest rate might be better because you’re guaranteed a good rate

Current financial status

Your financial stability and expected income should also be taken into consideration when making a decision. 

When to choose ARM:

  • If you need low monthly payments now, but know your income will increase before the rate adjustment period begins, an ARM rate might be your best option. This is often the case if you’re finishing law school or medical school and know your earnings will increase dramatically or if you will receive an inheritance or access to a trust at a certain age

When to choose fixed:

  • If you expect a fairly steady income or a possible decrease in income due to having a child or retiring, a fixed-rate mortgage might be better

Interest rate trends

While you can’t predict interest rates, taking note of trends can help you decide which mortgage is a better fit for you. 

When to choose ARM:

  • As interest rates rise, an ARM can be the better choice because you will likely be able to take advantage of a lower initial interest rate

When to choose fixed:

  • As interest rates trend lower, a fixed interest rate is often better because you can lock in the low interest rate over the length of your loan without worrying about periodic rate adjustments.

Desire for stability

Finally, you want to think about your period preferences related to financial stability. 

When to choose ARM:

  • If your mortgage payment increasing and decreasing in the long term doesn’t bother you, then an ARM could be a good choice

When to choose fixed:

  • If you need stability with your finances, especially major bills like your mortgage, you might want to opt for a fixed-rate loan so you can bypass the changes over time. 

There are numerous factors to consider when choosing between a fixed rate vs. adjustable rate mortgage, and there is no right or wrong option. They both provide their advantages and disadvantages depending on your preferences and stage in life.

Learn More About Fixed Rate & Adjustable Rate Mortgage Options

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alicia bowen
Alicia Bowen
Mortgage Specialist
NMLS #305735