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Fixed or Adjustable?

Like some other financial and investment products, many different mortgage options are available for your choosing. Two fundamentally different types of mortgages exist, and they differ in terms of how their interest rate is determined: fixed-rate mortgages and adjustable-rate mortgages.

Distinguishing fixed from adjustables

Before adjustable-rate mortgages came into being, only fixed-rate mortgages existed. Usually issued for 15 or 30-year periods, fixed-rate mortgages have interest rates that are fixed during the entire life of the loan.

  • With a fixed-rate mortgage, your monthly mortgage payment amount does not change. No surprises, no uncertainty.
  • Adjustable-rate mortgages (ARMs for short) have an interest rate that varies. The interest rate on an ARM typically adjusts every six to twelve months, but it may change as frequently as every month.

The interest rate on an ARM is primarily determined by what's happening overall to interest rates. When interest rates are generally on the rise, odds are that your ARM will experience increasing rates, thus increasing the size of your mortgage payment. Conversely, when interest rates fall, ARM interest rates and payments generally fall.