A fixed-rate mortgage keeps its interest rate for the agreed loan term. An adjustable-rate mortgage has rules allowing later changes. The initial ARM payment may be attractive, but a responsible comparison also examines how and when it can change.
Choose an adjustable rate only after understanding the adjustments.
Read the adjustment mechanics
Ask about the initial fixed period, adjustment frequency, index, margin, and caps. These work together to determine later rates. Ask the lender to show an adverse payment example using the contract’s actual terms.
Challenge the exit assumption
A plan to sell or refinance before an adjustment may not work out. Property values, income, credit, and available products can change. Make sure the loan is understandable even if you keep it longer than planned.
Compare the entire payment
A fixed interest rate does not fix taxes, insurance, or association dues. In both products, distinguish principal and interest from other ownership costs. Compare costs using a common time horizon.
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CFPB: Exploring your loan choices ↗CFPB: Understanding your Loan Estimate ↗General education, not an approval or personalized recommendation. Loan terms and eligibility vary. Our editorial standards.