One of the biggest decisions you will make when getting a mortgage is whether to go with a fixed rate or an adjustable rate. Most people hear "adjustable" and think it is automatically a bad choice. That is not always true. After 23 years of originating loans and 18 years in real estate sales, my answer is always the same: it depends on your situation. How long you plan to stay in the home, where interest rates are, and what your financial goals are all play into the decision. There is no one-size-fits-all answer.
The Big Question: Fixed or Adjustable?
When people ask me whether they should do a fixed or adjustable rate, my answer is always the same. It depends. It depends on how long you plan to stay in the home. It depends on your financial goals. It depends on where interest rates are. There is no single right answer for everyone. I break down when an adjustable vs fixed rate might make sense in my Ask Patrick answer.
The goal is to match the loan product to your specific situation. That is where having a knowledgeable loan officer who will take the time to understand your needs makes a real difference.
Fixed Rate Mortgage: The Predictable Choice
A fixed rate mortgage is exactly what it sounds like. The rate never changes. If you lock in 6.5 percent today, you will have that same rate for the next 30 years. That predictability gives people peace of mind. They know exactly what their payment will be every single month for three decades. There is real value in that certainty.
Fixed Rate Best For
- Long-term homeowners planning to stay 10 years or more
- Buyers on a tight budget who cannot afford a higher payment if rates go up
- Anyone who prefers set-it-and-forget-it certainty
Adjustable Rate Basics: How ARMs Work
An adjustable rate mortgage works differently. Your rate is fixed for an initial period, and then it adjusts. The most common types include:
5/1 ARM
5 years fixed, then adjusts every year
7/1 ARM
7 years fixed, then adjusts every year
10/1 ARM
10 years fixed, then adjusts every year
ARMs come in all different loan types. You can get ARMs for FHA, VA, conventional, and USDA loans. Each works the same way: a fixed period followed by annual adjustments based on market conditions.
Why ARMs Are Back in 2026
For the first time in nearly a decade, the ARM product makes sense again. The spread between a 5-year ARM and a 30-year fixed is now meaningful. On an FHA loan with a 680 credit score, the numbers look like this:
5-Year ARM
5.75%
FHA with 680 credit score
30-Year Fixed
6.25%
FHA with 680 credit score
That half a percent difference is a big deal. In past years, the spread was marginal, often just an eighth of a point. When rates were at historic lows below 4 percent, ARMs offered no real savings. Today, with rates in the sixes, the spread is finally wide enough to make ARMs attractive again.
New ARM Qualification Benefit
This is one of the biggest changes in mortgage qualifying in recent years. In the past, even if you used an ARM, you had to qualify based on the higher 30-year rate. That completely defeated the purpose of getting a lower ARM rate for qualification purposes.
As of 2025 and into 2026, that has changed. If you lock an ARM with at least a 5-year initial term (a 5/1 ARM or longer), you can now qualify using the lower ARM rate instead of the 30-year fixed rate. This means two things:
Qualify for More Home
The lower rate expands your buying power. If your income was not quite enough on a 30-year fixed, switching to an ARM might get you there.
Lower Monthly Payment
The lower ARM rate means a smaller monthly payment during the initial fixed period, freeing up cash for other expenses.
How ARMs Work: Index, Margin, and Caps
Understanding how an ARM adjusts after the fixed period is important. The adjustment uses a formula embedded in your loan documents:
Index Rate + Margin = Fully Indexed Rate
Index Rate
Based on the 10-year Treasury or SOFR rate. This fluctuates with the market and can go up or down.
Margin
A fixed percentage the lender charges on top of the index rate. This never changes for the life of the loan.
Caps
Protection against runaway rate increases. Typically 2 percent per year maximum increase.
For example, if the margin is 1.75 and the index rate is 3 percent, your fully indexed rate is 4.75 percent. If the index goes to 4 percent, your rate becomes 5.75 percent. If the index drops to 2 percent, your rate drops to 3.75 percent. The caps ensure your rate cannot spike beyond what the cap structure allows, typically 2 percent per year.
Worked Example: $300,000 Purchase
Let me walk through a real example so you can see the numbers. We will use a $300,000 purchase price with an FHA loan and a 680 credit score.
Monthly Payment Comparison (Principal & Interest)
30-Year Fixed at 6.25%
$1,846
per month
5-Year ARM at 5.75%
$1,751
per month
The Full Savings Picture
That $60 increase after the reset is not nothing, but it is not catastrophic either. And if that happens, you can always refinance into a 30-year fixed at that time.
When an ARM Makes Sense
Short-Term Stay
If you know you will be in the home less than 5 to 7 years, an ARM gives you a lower rate during the time you own it. You sell before the rate ever adjusts.
Fixed Rates Are High
If 30-year fixed rates are elevated and you can get an ARM substantially lower, the savings during the fixed period can be significant.
Plan to Refinance
If you expect rates to come down and plan to refinance into a fixed rate before the ARM adjusts, you can save during the years you needed savings.
Want to Qualify for More Home
The lower ARM rate and the new qualification rules mean you may qualify for a higher purchase price than with a 30-year fixed.
When a Fixed Rate Makes More Sense
Long-Term Stay
If you plan to stay in the home 10 years or more, a fixed rate locks in your payment and removes the risk of future rate increases.
Tight Budget
If a higher payment after the adjustment period would strain your finances, the certainty of a fixed rate is worth the slightly higher initial cost.
Want Simplicity
If you do not want to think about refinancing, follow market rates, or worry about adjustments, a fixed rate gives you peace of mind for the entire loan term.
The Bottom Line
Neither a fixed rate nor an adjustable rate is inherently better than the other. The right choice depends on matching the loan product to your situation and your financial goals. For the first time in nearly a decade, ARMs offer real savings with a meaningful spread of about half a percent below fixed rates, plus a new qualification benefit that can help you afford more home.
ARMs are not for everyone. If you plan to stay in your home for 30 years and never want to think about refinancing, a fixed rate is the right call. But if you are comfortable with the idea of potentially refinancing in 5 to 7 years, and you want to save money now, the ARM is worth serious consideration.
Watch on The Mortgage Patriot YouTube Channel
Patrick breaks down fixed vs. adjustable mortgages and more on his educational channel.
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Not Sure Which Mortgage Is Right for You?
Every buyer's situation is different. I will walk through your numbers, your timeline, and your goals to help you decide between a fixed rate and an adjustable rate. That is what I do. I have been doing it for over 23 years.
Patrick Kevin Fagan
Loan Officer and Realtor · AXEN Realty LLC · San Antonio and Texas Hill Country
Licensed Sales Agent · 454749 · TX · NMLS 877741
Sincerely, Patrick Kevin Fagan