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Short answer
A fixed-rate mortgage keeps the same interest rate, and the same principal and interest payment, for the life of the loan, while an adjustable-rate mortgage (ARM) has a rate that is fixed for an initial period and then can go up or down at set intervals based on an index plus a margin, within caps. The CFPB notes that many ARMs start at a lower rate than fixed-rate loans, but the payment is likely to rise after the introductory period. A fixed rate fits buyers who want certainty; an ARM can fit buyers who plan to move or refinance within the fixed period and can afford the payment if it rises to its cap.
| Feature | Fixed-rate mortgage | Adjustable-rate mortgage (ARM) |
|---|---|---|
| Interest rate | Set at closing; never changes | Fixed for an intro period, then adjusts at set intervals |
| Payment (principal and interest) | Same for the life of the loan | Can rise or fall after the intro period |
| Starting rate | Set at closing for the whole loan | Many ARMs start lower than fixed-rate loans (CFPB) |
| What drives changes | Nothing | Index plus margin, within caps |
| Predictability | High | Lower after the intro period |
| Fannie Mae max LTV, one-unit primary purchase | 97% | 95% |
| Typical fit | Staying long term; want certainty | Moving or refinancing within the intro period; can absorb higher payments |
With a fixed-rate mortgage, the CFPB explains, the interest rate is set when you take out the loan and will not change. Your principal and interest payment stays the same; taxes and insurance in an escrow account can still change. The CFPB notes that most borrowers choose fixed-rate mortgages, especially those who value certainty about loan costs over the long term.
An ARM starts with an introductory rate that stays the same for a set time, often several years. ARMs are commonly named for that period: a 5/1 or 7/1 ARM is fixed for 5 or 7 years and then adjusts on a set schedule. After the introductory period, your rate changes based on three things:
The CFPB says it is common for the first-adjustment cap to be two or five percentage points, and for later adjustment caps to be one or two points.
The CFPB warns not to count on being able to sell your home or refinance before the rate changes. Your home's value could fall, or your finances could change. The CFPB's loan options page adds that if you stay in the home longer than expected, you could end up paying a lot more. Before choosing an ARM, ask:
The CFPB's Consumer Handbook on Adjustable-Rate Mortgages (CHARM booklet) walks through these terms in detail.
A fixed-rate mortgage is often worth a close look if:
An ARM is often worth a close look if:
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The CFPB explains that with a fixed-rate mortgage, the interest rate is set when you take out the loan and will not change. With an adjustable-rate mortgage, the interest rate may go up or down after an initial period.
The first number is how many years the starting rate is fixed. The second shows how often the rate can adjust after that. A 5/1 ARM is fixed for five years, then adjusts every year.
When the intro period ends, the index and the margin are added together to set the new rate, within the loan's caps. The margin is set by your lender when you apply, and the CFPB notes you can negotiate it.
Caps limit how much the rate can change at the first adjustment, at each later adjustment, and over the life of the loan. The CFPB says first-adjustment caps are commonly two or five percentage points, and later caps one or two.
Possibly, but the CFPB warns not to count on being able to sell or refinance before the rate changes. Your home's value or your finances could change.
The CFPB notes that most borrowers choose fixed-rate mortgages. ARMs offer less predictability but could cost less in the short term.
This page is general education, not a loan offer, commitment, or approval. Program rules and figures change; the figures here were checked against the sources below in October 2026. Your options depend on your credit, income, property, and each lender's guidelines. All loans are subject to approval.
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