Fixed-Rate vs Adjustable-Rate Mortgages — How ARM and Fixed Loans Compare in 2026

A fixed-rate mortgage locks in your interest rate for the entire life of the loan — typically 15 or 30 years. Your monthly principal and interest payment remains exactly the same from the first payment to the last, regardless of what happens to market interest rates. As of late February 2026, the average 30-year fixed rate is 5.98% and the 15-year fixed rate is 5.44%, according to Freddie Mac.

On a $400,000 home with 20% down ($320,000 loan), a 30-year fixed at 5.98% produces a monthly principal and interest payment of approximately $1,914. Over the full 30 years, you would pay about $368,960 in total interest. The same loan at 15 years and 5.44% costs $2,597 per month but only $147,500 in total interest — a savings of over $221,000.

The fixed-rate mortgage is the most popular choice in America, accounting for roughly 90% of all mortgage originations. Its predictability makes budgeting straightforward, and it protects you completely against rising interest rates. The downside is that you pay a premium for this certainty — fixed rates are typically 0.5–1.5 percentage points higher than the initial rate on a comparable ARM.

An adjustable-rate mortgage offers a lower initial rate for a fixed introductory period, after which the rate adjusts periodically based on a market index plus a lender margin. The most common ARM structures are the 5/1 ARM (fixed for 5 years, then adjusts annually), 7/1 ARM (fixed for 7 years), and 10/1 ARM (fixed for 10 years).

ARMs typically offer introductory rates 0.5–1.5 percentage points below the 30-year fixed rate. In today's market, that could mean starting at around 5.0–5.5% compared to 5.98% fixed. On a $320,000 loan, the difference between 5.25% (ARM) and 5.98% (fixed) saves about $140 per month, or $8,400 over the first 5 years of the loan.

After the introductory period ends, the rate adjusts based on a benchmark index — typically the Secured Overnight Financing Rate (SOFR) — plus a margin of 2–3 percentage points. Rate caps limit how much the rate can change: typically 2% per adjustment period and 5–6% over the life of the loan. So if your initial rate is 5.25% with a 5% lifetime cap, your rate could never exceed 10.25% — an important safety net.

A fixed-rate mortgage is the better choice in several scenarios. If you plan to stay in the home for more than 7–10 years, the rate certainty over the long term outweighs the short-term savings of an ARM. If rates are relatively low and you want to lock in before they potentially rise further, fixed is the safer bet. And if you value predictability and don't want to worry about future rate adjustments, the fixed rate provides peace of mind.

Fixed-rate mortgages also make more sense when rates are expected to rise. In a rising-rate environment, an ARM's lower initial rate becomes a temporary advantage that could reverse sharply when the adjustment period begins. Given that the Fed funds rate has been declining (from 4.33% in August 2025 to 3.64% in January 2026), the future direction of rates is a key consideration. If the cutting cycle pauses or reverses, current fixed rates could look attractive in hindsight.

The 15-year fixed option at 5.44% deserves serious consideration for buyers who can handle the higher payment. It builds equity roughly twice as fast as a 30-year and saves over $221,000 in interest on a $320,000 loan. Many financial planners recommend the 15-year option for buyers who are already maximizing retirement contributions and have a solid emergency fund.

An ARM makes financial sense if you are confident you will sell or refinance within the introductory fixed period. Military families who relocate every 3–5 years, corporate transferees, or buyers who plan to upgrade homes within 5–7 years can save significantly with an ARM since they never face the rate adjustment.

ARMs also make sense when the rate spread between fixed and ARM products is large. If you can get a 5/1 ARM at 5.0% versus a 30-year fixed at 5.98%, the nearly 1-percentage-point discount generates meaningful savings during the introductory period. On a $320,000 loan, that spread saves roughly $190 per month, or $11,400 over 5 years — money that could be invested or used to pay down principal faster.

A declining-rate environment also favors ARMs. If the Federal Reserve continues cutting rates, your ARM adjustment could actually result in a lower rate when the introductory period ends. However, relying on rate predictions is inherently risky — nobody consistently forecasts interest rate movements accurately. Only choose an ARM if you could still afford the payment at the lifetime rate cap.

The 15-year fixed emerges as the clear winner on total cost, but it requires affording a monthly payment that is $683 higher than the 30-year. The ARM offers the lowest initial payment but carries uncertainty after year 5. For most buyers, the 30-year fixed strikes the best balance between affordability and predictability.