Fixed vs. adjustable rate mortgages

If you’re shopping for a mortgage, you may be comparing fixed- and adjustable-rate loans. With a fixed-rate mortgage your interest rate remains the same for the life of the loan. With an adjustable-rate mortgage, your loan will start with a fixed rate for a certain period—usually three, five or seven years. Afterward, the interest rate may fluctuate depending on market conditions. To help you decide which option is right for you, we’ll review details of both options, including pros and cons for you to consider.

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Fixed-rate mortgages



You know exactly how much interest you'll pay and what your monthly principal and interest payment will be for the life of the loan. No surprises.


With more stability in your budget, you can plan better for savings and other purchases.


Fixed-rate loans are generally less complicated and easier to understand than adjustable-rate mortgages.


Locked in:

If interest rates fall, you’ll have to refinance to take advantage of them, which will result in more closing costs and paperwork.

Choosing a fixed-rate mortgage

Fixed-rate mortgages typically have 15- or 30-year terms, both of which offer consistent, predictable payments that stay the same over the life of the loan. The 30-year fixed rate mortgage is the most common home loan in America.

Adjustable-rate mortgages (ARMs)


Lower starting rate:

Get a lower interest rate and payment for the initial, fixed-rate portion of the term.

Short-term benefit:

It’s a less expensive way to finance the purchase of a home if you plan to sell before the interest rate adjusts.


If interest rates fall in the future, your rate and payment may fall.



If interest rates rise in the future, your rate and payment will rise, and the increase could be significant. This could cost you more over the life of the loan.


ARMs are more complicated loans. It’s important to fully understand things like margins, caps and adjustment indexes.

Choosing an adjustable-rate mortgage

While ARMs can be complicated, they can help you take advantage of lower rates in the initial period. Just make sure that you will still be able to afford your payments if they increase when the loan adjusts. If rates fall, however, you could benefit. 

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The material provided on this website is for informational use only and is not intended for financial or investment advice. Bank of America and/or its affiliates, and Khan Academy, assume no liability for any loss or damage resulting from one’s reliance on the material provided. Please also note that such material is not updated regularly and that some of the information may not therefore be current. Consult with your own financial professional when making decisions regarding your financial or investment options.

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