The biggest choice after the loan amount is whether the interest rate stays put or changes. Fixed-rate mortgages offer predictability. Adjustable-rate mortgages trade a lower starting rate for uncertainty later.
How a fixed-rate loan works
With a fixed-rate mortgage the interest rate and principal-and-interest payment stay the same for the whole term, commonly 15 or 30 years. Your taxes and insurance may still rise, but the core payment does not. This stability makes budgeting simple and protects you if market rates climb.
How an ARM works
A 5/6 ARM, for example, has a fixed rate for five years and then adjusts every six months based on an index plus a margin. Caps limit how much the rate can move at the first adjustment, at each later adjustment and over the life of the loan. Always read the cap structure and ask what your payment would be at the maximum rate.
When each makes sense
A fixed rate suits buyers who plan to stay many years or who value certainty. An ARM can make sense if you expect to sell or refinance before the fixed period ends and could comfortably afford the worst-case payment. Never choose an ARM only because it lets you qualify for a bigger house.
Try the numbers
Use our Mortgage Payment Calculator to see this in practice. With its default example (Home price: $400,000; Down payment: 20%; Interest rate: 6.5%), it shows total monthly payment: $2,539. Adjust the inputs to match your situation.
Key takeaways
- Fixed rates give payment certainty; ARMs start lower but can reset higher.
- Check initial, periodic and lifetime caps before choosing an ARM.
- Make sure you can afford the maximum possible payment.
This article is for general education and is not personalized financial, tax or legal advice. Rules and limits change; confirm current figures with official sources such as IRS.gov, SSA.gov and StudentAid.gov, or consult a qualified professional. © 2026 FinanzCalc.