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Before you refinance or buy a new home, it’s important to really understand your options. That’s why we’re discussing the difference between fixed-rate mortgages and adjustable rate mortgages (ARMs).

What’s a Fixed-Rate Mortgage?

A fixed-rate mortgage is exactly as it sounds – it’s where the interest rate is fixed for a certain period of time. Maybe it’s 10, 15 or 30 years – but for the entire length of that mortgage, that interest rate won’t change. This appeals to a lot of people because it gives them certainty.

What’s an Adjustable Rate Mortgage (ARM)?

An ARM has two components. The first is the fixed component, meaning that the interest rate is fixed for a certain period of time. This can be as short as six months or as long as 10 years. However, they all begin to adjust after that fixed period. They adjust up and down with the market.

At Quicken Loans, whether you choose the 5-, 7- or 10-year ARM, you’ll get the lowest rate we offer and save thousands over a traditional fixed-rate mortgage during the initial fixed-rate period. Afterwards, the rate may change according to the terms and your documentation. This may be in intervals of 6 months or a year, for example..

Should I Pick an ARM or Fixed-Rate Mortgage?

You might be wondering why you would take an ARM when you could have the certainty of a fixed-rate mortgage? The answer is simple; most ARMs come with a lower interest rate than the fixed-interest rate – that’s beneficial.

There’s also interest rate savings by taking that adjustable rate. For example, if you move in five years, are a first-time home buyer, getting married, or having children, you might strongly consider an ARM and take those savings.

Did you know that the average American moves every nine years and that the average 30-year fixed is on the books for only about five or seven years before people move or refinance?

So paying for 30-year money, which is more expensive, doesn’t always make sense – especially if you’re in a situation where you might be in a new mortgage sometime in the near future.

If you plan on staying in your home for a long period of time, a fixed mortgage could make the most sense for you.

Working with a good Home Loan Expert will help you understand the pros and cons so you’ll be able to match your situation with the right mortgage product.

And if you need help answering your mortgage calculating questions, check out our Quicken Loans Mortgage Calculator app.

Have any questions? If so, ask us in a comment!

This Post Has 6 Comments

  1. I currently have a Quicken loan for the past 2 1/2 yrs at 4.25 APR I would like to consider a ARM 5/1. We do not expect to be in the house for more than 5 yrs. Can i convert To an ARM without exorbitant costs ?

    1. Hi Frank:

      We can certainly help you look into options to refinance. One thing I will tell you is that the spread between fixed-rate mortgages and adjustable rate mortgages is narrow enough right now that you might want to look into fixed-rate options for your mortgage as well because the cost savings may not make much difference. If you would like to get started, you can do so online with Rocket Mortgage or give us a call at (888) 980-6716.

    1. Hi Teresa:

      Thanks for reaching out! I’m going to get this to our Client Relations team so we can record your contact preferences. Thanks!

  2. First, The house won’t be ready until Jan. 2018, so we have time. It will run around $300,000. depending on the finished basement. What I would like to do is do an ARM for 7 years. I have a high debt to income ratio because of student loans. They are now@95,000, I have put these in a low income forgivness program. I’ve looked into several mortgage situations, and can’t seam to get a straight answer. I would like to be in this home for 5 to 6 years, and then sell. I have $3,000. for a down payment. My average income is $10,000. a year with a depentant income from my sons dad(SSI) of $758. Is this a possibility?

    1. Hi Tamera:

      I can tell you right now that you can’t get an adjustable rate mortgage with a 1% down payment. The loan option doesn’t exist. That said, I’m going to recommend you talk to one of our Home Loan Experts regarding other potential options you may have. You can get in touch with them at (888) 980-6716 and they’d be able to go into your situation and find the best option for you or at the very least give you solid advice.

      Kevin Graham

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