Fixed-Rate vs. ARM Mortgage
Payment predictability
A fixed-rate loan keeps its interest rate for the agreed term, making scheduled principal-and-interest payments generally predictable. Taxes and insurance can still change.
An adjustable-rate mortgage has an initial period followed by contractual rate adjustments. Its initial payment is not a forecast of future costs.
Read the ARM contract
Check the index, margin, initial fixed period, adjustment frequency, floor and caps. Ask the lender to show payments after possible adjustments and the maximum permitted rate.
The labels on ARMs describe a schedule, not the full risk. Two loans with a similar label may differ in caps, fees or adjustment mechanics.
Choose a risk you can carry
A fixed payment may suit someone who prioritizes stability. An ARM requires enough budget capacity to manage possible changes and a clear understanding of its terms.
Do not assume you can refinance or sell before an adjustment. Employment, property values and lending options can change. Compare written estimates and unfavorable payment scenarios.