ARM vs Fixed-Rate Mortgage: Which Should You Choose?

Fixed-Rate Mortgage

Your rate never changes for 30 years. Current average: 6.8%. You know exactly what your payment will be forever.

Adjustable-Rate Mortgage (ARM)

Lower initial rate (typically 0.5-1% below fixed) for 5-7 years, then adjusts annually. A 5/1 ARM might start at 6.0% vs 6.8% fixed.

When ARM Wins

If you plan to move or refinance within 5-7 years, the lower ARM rate saves money. On a $400K loan, 0.8% lower rate saves $210/month for the first 5 years = $12,600.

When Fixed Wins

If you plan to stay long-term and rates might rise, the fixed rate protects you. Peace of mind has value too.