Fixed-Rate vs Adjustable-Rate Mortgages (ARM): Complete Comparison Guide
Compare 30-year fixed-rate mortgages vs 5/1 and 7/1 ARMs. Understand rate caps, initial discount periods, and long-term interest risk.
By Sarah Jenkins, CFA
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Reviewed by David Vance, CFP
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5 min read
Fixed-Rate vs ARM Mortgage Comparison Matrix
| Feature | Fixed-Rate Mortgage | Adjustable-Rate Mortgage (ARM) |
|---|---|---|
| Interest Rate Stability | 100% Fixed for full term (15/30 yrs) | Fixed initially, then resets periodically |
| Initial Monthly Payment | Slightly Higher | Lower (Teaser Rate Period) |
| Long-Term Market Risk | Zero market interest rate risk | Risk of payment increase when caps reset |
| Ideal Borrower Profile | Staying in home 7+ years | Planning to move or refinance within 5–7 years |
How Adjustable-Rate Caps Work
ARMs feature rate adjustment caps (e.g., 2/2/5 caps) that limit how much the interest rate can increase during the first adjustment, subsequent annual adjustments, and over the lifetime of the loan.