Fixed or adjustable rate: how to choose
A fixed-rate mortgage keeps the same interest rate for the whole loan. An adjustable-rate mortgage, or ARM, starts with a fixed period and then the rate can change on a schedule. The right choice depends on how long you will keep the loan and how well your budget handles a higher payment. Ask your lender to show you the worst case in writing.
Tell me what you are looking for and I will help you narrow it down. Start with the buyer consultation form.
How a fixed-rate loan works
Your principal and interest payment stays the same for the term, commonly 15 or 30 years. Taxes and insurance can still change, so your total payment can move. A fixed rate is easy to plan around, which is why Freddie Mac's weekly survey tracks fixed-rate loans. It reported the 30-year average at 7.40% and the 15-year at 6.71% as of October 15, 2026. Freddie Mac notes that fixed products dominate the market it surveys.
How an adjustable-rate loan works
An ARM has an initial period with a set rate. After that, the rate adjusts at intervals based on an index plus a margin written in your loan documents. Most ARMs have caps that limit how much the rate can rise at each adjustment and over the life of the loan. The names such as 5/1 or 7/1 describe the length of the fixed period and how often it adjusts after. Ask your lender to explain the index, the margin and each cap for the exact loan you are offered.
When people consider an ARM
They expect to sell or refinance before the fixed period ends.
They want a lower starting payment and can afford the higher payment if the rate rises.
They are buying a home for a short time, for example a limited assignment in the area.
These are reasons, not recommendations. Refinancing later is not guaranteed, because it depends on rates, your credit, your home value and costs at that time.
When a fixed rate often fits
You plan to stay a long time and want a payment you can count on.
Your budget has little room for a higher payment.
You prefer not to think about the rate again.
Questions to ask your lender
What is the starting rate and how long does it last?
What index and margin set the rate afterward?
What are the periodic cap and the lifetime cap?
What would my payment be at the highest possible rate?
Is there a penalty if I pay it off or refinance early?
What is the APR compared with the note rate?
Compare on the same day
Rates move daily, so ask each lender for a Loan Estimate on the same day and the same loan amount. The CFPB buying a house tools explain how to read a Loan Estimate and compare offers. I can introduce you to lenders I work with, and you are free to choose any lender you like.
My view on how to decide
Start with your plan, not the rate. How long will you own the home? What payment could you carry in the worst case? If you cannot answer the second question comfortably, an ARM deserves extra caution. If you can, it may be one option among several. I will not push you toward either one.
A worked example with invented rates
These rates are invented to show the mechanics and are not quotes. On a $400,000 loan over 30 years, a fixed rate of 6.5 percent has principal and interest of about $2,528 a month. Suppose an adjustable loan starts at 5.75 percent for its fixed period. The payment on the same balance is about $2,334, which is roughly $194 less each month. If the rate later adjusted to 7.75 percent on that same balance, the payment would be about $2,866. The real figures depend on the loan's caps, the index and the remaining balance, so ask your lender for them in writing. The example only shows how a payment can move both ways.
A short checklist for an adjustable rate loan
How long is the fixed period, and when is the first change?
How much can the rate move at each change and over the life of the loan?
What index does the rate follow?
What is the highest payment the loan could reach?
How long do I expect to keep the home or the loan?
If a lender cannot answer these in writing, keep shopping.
My take: [ROB INPUT: add one or two sentences of your own view before this is published.]
Frequently asked questions
Is an ARM riskier than a fixed-rate loan?
It can be, because your payment can rise after the fixed period. Caps limit the increase but do not remove it.
Can I switch from an ARM to a fixed loan?
You could refinance if you qualify and it makes sense on the costs. It is not guaranteed.
Which is cheaper today?
It depends on the lender, the loan and the day. Compare same-day Loan Estimates for both.
Sources, checked October 21, 2026
Where to go next
Keep reading: how mortgage rates are set, what rates mean for your payment, rate buydowns explained. Browse all posts in Market and rates.
Tell me what you are looking for and I will help you narrow it down. Start with the buyer consultation form.
This is general information, not lending, tax or legal advice. Talk to your lender, your CPA and your South Carolina closing attorney about your own situation. Rob "Red" Redziniak, Keller Williams Greater Charleston, Dave Friedman Team.
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