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When deciding on a mortgage, interest rates are a key factor to consider. But it’s not just about which loan has the lower interest rate. Depending on whether it is a fixed or adjustable-rate mortgage (ARM), you could end up with different monthly payments and overall costs.
With the help of a proper mortgage type guide, you learn the difference between fixed vs adjustable rates and can choose the right loan for your financial situation.
Fixed-rate mortgages offer the same interest rate throughout the mortgage period. This means your payments will generally be the same every month. The predictability of this loan also guarantees the total amount you will pay, including interest, by the end.
Benefits
- Easier to budget: Knowing exactly how much your monthly payments are makes budgeting easier with a mortgage that is fixed vs adjustable. This allows for more certainty in how much you can allocate for your other monthly expenses, as you know exactly how much you will have left after the mortgage payment.
- Protection from sudden changes in mortgage rates: Even if inflation rises and lenders increase interest rates, yours stays the same. Fixed-rate mortgages ensure that if anything majorly impacts the market, your interest rate won’t increase.
Drawbacks
- Higher interest rate: The initial interest rate of fixed vs adjustable mortgages is a major difference. While a fixed rate offers the same rate throughout, they are also higher compared to ARMs. Qualifying for this is more challenging if you have a lower credit score or a higher debt-to-income ratio.
- Interest rate doesn’t lower: There are also instances when lenders lower interest rates, such as during periods of deflation or low demand for loans. In these cases, your interest rate doesn’t change because of your mortgage type. You miss out on chances at a lower interest rate with a mortgage that is fixed vs adjustable.
Adjustable-Rate Mortgages
On the other hand, an adjustable-rate mortgage has a variable interest rate. This means that the interest can change over time depending on market trends and other factors. You start with a lower interest rate in ARMs vs fixed rate. However, while this rate may decrease over time, it could also get much higher.
Benefits
- Cheaper initial interest: For the first 3-7 years of your loan, the interest rates are lower in ARMs vs fixed rate mortgages. This lets you save more for your monthly budget and provides flexibility for your other expenses. With this interest rate, it’s also easier to apply with lower credit.
- Potential to lower interest: The interest rates of ARMs can change, but they don’t always increase. Depending on the market conditions, the interest rate could be lower, leaving you a little more savings each month in ARMs vs fixed rate mortgages.
Drawbacks
- Less predictable: While ARMs can potentially provide lower interest rates and ultimately cost you less, there’s also a chance that it does the exact opposite. With an unpredictable interest rate, you’re unsure of how much you will end up spending each month, and you risk a higher interest rate than you are financially prepared for.
- Require a larger down payment: The down payment is generally higher on ARMs vs fixed rate mortgages. While a conventional fixed-rate loan typically requires a 3% down payment, an ARM requires a 5% down payment. This means paying more upfront with an ARM, even if you initially receive lower interest rates.
Choosing Between the Two
So, between a fixed vs adjustable interest rate, which is the better mortgage type? This ultimately depends on your financial situation and what you value in a mortgage.
Fixed-rate is the ideal option if you plan to stay in your house for a long time and need a more predictable monthly budget. You can also choose this when the market interest rates are lower to secure a low interest rate and avoid increases.
ARMs, on the other hand, are a good option if you aren’t staying in the house long. Maybe you’ll be moving out in a few years and want to take advantage of the low interest rates at the beginning of the mortgage. This is also an option when market interest rates are high, as initial interest rates are lower in ARMs vs fixed rate.
Fast pre-approvals, tailored loans, and trusted advice—that’s what you can expect with Nclusive Financial. Buying your first home, investing in property, or looking for the right loan? We’re here to help you make it happen.
Fast pre-approvals, tailored loans, and trusted advice—that’s what you can expect with Nclusive Financial. If buying your first home, investing in property, or looking for the right loan, we’re here to help you make it happen. Let’s turn your next move into a reality.
Key Takeaways
- Fixed-rate mortgages offer an interest rate that doesn’t change, regardless of market conditions. These are easier to budget and do not suddenly increase, but they also have a higher interest rate.
- Adjustable-rate mortgages have a lower initial interest rate, but this rate can fluctuate over time. Interest rates can decrease or increase, and as a result, costs can rise.
- When choosing between a fixed vs adjustable rate, it’s important to read a mortgage type guide, consider your financial situation, how long you plan to stay in the house, and the market interest rate.
References
- Graham, K. (2025, May 9). Fixed- vs. adjustable-rate mortgage: What’s the difference? Rocket Mortgage. https://www.rocketmortgage.com/learn/arm-vs-fixed
- Maxwell, T. (2025, June 16). What’s the Difference Between Fixed-Rate and Adjustable-Rate Mortgages? Experian. https://www.experian.com/blogs/ask-experian/whats-the-difference-between-fixed-rate-and-adjustable-rate-mortgages/
- McWhinney, J. (2024, November 11). Fixed vs. Adjustable-Rate Mortgage: What’s the Difference? Investopedia. https://www.investopedia.com/mortgage/mortgage-rates/fixed-versus-adjustable-rate/
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