Fixed vs. Adjustable Mortgage Rates: Which Is Right for You?

Key Differences Between Fixed and Adjustable Rates

The most fundamental difference between a fixed-rate mortgage and an adjustable-rate mortgage (ARM) is whether the interest rate can change after you take out the loan. With a fixed-rate mortgage, the interest rate is set when you take out the loan and will not change for the entire term. This means your monthly principal and interest payment remains predictable. In contrast, with an adjustable-rate mortgage, the interest rate may go up or down over time, which means your monthly payment can vary.

Sources: Consumer Financial Protection Bureau

How ARMs Work: Initial Rate and Adjustments

Many ARMs start at a lower interest rate than fixed-rate mortgages. This initial rate may stay the same for months, one year, or a few years. After that introductory period, the ARM interest rate changes on a regular interval, and the payment amount is likely to go up, though it could also go down. ARM interest rates are tied to an index, such as SOFR or U.S. Treasury rates. Some ARMs set caps on how high the interest rate can increase at any time or over the life of the loan, and some also limit how much the interest rate may decrease.

For example, a common type of ARM is a 5/1 ARM, which offers a fixed rate for the first five years and then adjusts annually. The initial rate on a 5/1 ARM is often lower than a comparable 30-year fixed rate, making it attractive for some borrowers.

Sources: Consumer Financial Protection Bureau, Bank of America

Current Rate Trends for Both Types

As of August 12, 2026, the national average rate for a 30-year fixed mortgage was 6.72%, while the national average rate for a 5/1 ARM was 6.34%. Individual lenders may offer different rates. For example, on August 19, 2026, Bank of America offered a 30-year fixed rate of 6.750% and a 5y/6m ARM rate of 5.875% for a $200,000 loan with excellent credit. These rates illustrate that ARMs typically have lower initial rates than fixed-rate mortgages, but they also carry the risk of future rate increases.

Sources: Bankrate, Bank of America

Pros and Cons of Each Loan Type

Fixed-rate mortgages provide stability and predictable payments, making them a common choice for borrowers who plan to stay in their home for a long period. The main drawback is that the interest rate is typically higher than the initial rate on an ARM.

Adjustable-rate mortgages offer lower initial rates and flexibility, which can be beneficial if you plan to move or refinance before the rate adjusts. However, after the initial fixed period, the rate can adjust upward, increasing your monthly payment. Some ARMs have rate caps that limit how much the rate can increase, but payments can still become less affordable.

• Fixed-rate pros: stable payments, predictable budgeting, no rate changes.
• Fixed-rate cons: higher initial rate, may be more expensive than an ARM if you sell or refinance before the end of the term.
• ARM pros: lower initial rate, potential for lower payments if rates fall.
• ARM cons: payment can increase after the initial fixed period, rate adjustments add complexity and uncertainty.

Sources: Consumer Financial Protection Bureau

Factors to Consider When Choosing

When deciding between a fixed-rate and an adjustable-rate mortgage, consider how long you plan to stay in the home. If you expect to move or refinance within the initial fixed period of an ARM, you might benefit from the lower initial rate. If you plan to stay long-term and want predictable monthly payments, a fixed-rate mortgage might be more appropriate, even though the rate is higher.

Also consider your risk tolerance: can you handle the possibility of higher payments if the ARM rate adjusts upward? Rate caps can provide some protection, but they do not eliminate the risk.

Sources: Consumer Financial Protection Bureau

Example Scenarios: Rate Differences

To illustrate the potential cost difference, consider a $200,000 loan. Using the Bank of America rates from August 19, 2026, the 30-year fixed rate was 6.750% and the 5y/6m ARM initial rate was 5.875%. The ARM's initial rate is lower, which would result in a lower monthly payment for the first five years, assuming the loan amount and other terms are the same. However, after the fixed period, the ARM rate can adjust, and the payment may increase significantly depending on market conditions.

A detailed cost comparison depends on future rate changes, which are uncertain. Borrowers should use a mortgage calculator and consider worst-case scenarios when evaluating an ARM.

Sources: Bank of America

How to Compare Quotes Effectively

When comparing mortgage offers, focus on the interest rate, but also consider the annual percentage rate (APR), which includes fees and other costs. For ARMs, look at the initial rate, the adjustment frequency, and the rate caps. Compare quotes from multiple lenders to ensure you are getting a competitive deal.

Remember that the advertised rates may vary based on your credit score, loan amount, and location. Be sure to ask about any points or closing costs that might affect the total cost.

Sources: Bankrate

Side-by-Side Comparison: Fixed vs. Adjustable

The following table summarizes the key differences between a 30-year fixed-rate mortgage and a 5/1 ARM, using the national average rates from August 12, 2026, and example offers from Bank of America on August 19, 2026.

• Length of stay: If you plan to stay less than 5-7 years, an ARM's lower initial rate may save money; if staying longer, a fixed rate provides certainty.
• Risk tolerance: If you prefer predictable payments and can absorb a higher initial rate, fixed is safer; if you can tolerate potential payment increases, ARM may be appealing.
• Rate caps: Understand the caps on an ARM to know your maximum possible rate increase.

Sources: Bankrate, Bank of America