Fixed vs Adjustable-Rate Mortgage: Which One Wins for You?

Short answer: a 30-year fixed mortgage keeps the same rate and payment for the whole term — at the current average of 7.24% (Freddie Mac, week of October 29, 2026), principal and interest on a $400,000 loan is $2,725.99 a month for 30 years. A 5/6 ARM starts cheaper: at the current national ARM average of 6.29% (Mortgage Bankers Association, week ending October 30, 2026), the same loan costs $2,473.28 a month — $252.71 less — for five years only. After that it adjusts every six months within caps; if the index has risen two points, the payment jumps to $2,955.06. The fixed loan wins if you stay put and rates stay high; the ARM wins if you move or refinance before the higher payments erase the early savings — about 10 and a half years in, in our example.

How a 30-Year Fixed Mortgage Works

A fixed-rate mortgage is the simplest deal in home lending: the rate is set at closing and never changes, so the payment is the same in month 1 and month 360. The split inside the payment shifts — early on most of it is interest — but the total never moves.

At 7.24% over 30 years, each $1,000 borrowed costs $6.82 a month, so a $400,000 loan costs $2,725.99 a month. The rate is high by recent standards — a year earlier the same survey averaged 6.17% — though it has eased from 7.40% in mid-October to 7.18% in early November 2026. The trade-off: the fixed rate sits about a full point above the ARM start rate, and if market rates fall you only benefit by refinancing.

How a 5/6 ARM Works

An adjustable-rate mortgage trades certainty for a lower starting rate, and the name tells you the structure: in a 5/6 ARM, the rate is fixed for the first 5 years, then adjusts every 6 months for the remaining 25 years. It is the most common ARM sold today.

After the fixed period, the new rate is built from two pieces. The index is a published benchmark that moves with the market — nearly all new ARMs use the 30-day average SOFR (Secured Overnight Financing Rate), about 3.70% in late September 2026. The margin is a fixed number of points the lender adds to the index: set in your loan documents, never changing, commonly two to three points. Index plus margin is the fully indexed rate — at 3.70% plus a 2.75% margin, about 6.45%.

Three caps limit how far the rate can move. The standard cap structure on a 5/6 ARM is written 2/1/5:

Cap	What it limits	Typical size
Initial cap (2)	Move at the first adjustment, after year 5	2 points
Periodic cap (1)	Move at each later adjustment, every 6 months	1 point
Lifetime cap (5)	Total rise above the start rate, ever	5 points

On a 5/6 ARM starting at 6.29% with 2/1/5 caps, the rate can reach at most 8.29% at the first adjustment, then move at most one point every six months, and can never exceed 11.29%. The rate can also fall — the floor is the margin. Caps vary by lender, so confirm the three numbers on your Loan Estimate; a 7/6 ARM typically carries 5/1/5 caps, so its first adjustment alone can jump five points. When the rate adjusts, the payment is recalculated on the remaining balance over the remaining term.

Fixed vs ARM Side by Side

One $400,000 loan over 30 years: fixed 7.24% (Freddie Mac, week of October 29, 2026) against a 5/6 ARM starting at 6.29% (MBA, week ending October 30, 2026), with 2/1/5 caps.

	30-year fixed at 7.24%	5/6 ARM starting at 6.29%
Starting rate	7.24%, locked for 30 years	6.29%, locked for 5 years
First monthly payment	$2,725.99	$2,473.28 — $252.71 less
Payment after first adjustment	$2,725.99 — unchanged	$2,955.06 at 8.29%
Worst-case payment	$2,725.99 — there is none	$3,739.56 at 11.29%
Total interest, 30 years	$581,357	$634,916 if the rate rises 2 points at year 5
Best for	Staying 10+ years; a payment that never moves	Moving or refinancing within ~5–10 years
Biggest risk	Rates fall; you pay to refinance	Rates rise; the payment jumps 20–50%

Worked Example: A $400,000 Loan, Payment by Payment

Take a $400,000 loan — a $500,000 home with 20% down — over 30 years. The fixed loan at 7.24% costs $2,725.99 a month, first payment to last. The ARM at 6.29% costs $2,473.28 a month for five years: $252.71 less every month, $15,162.49 banked over 60 payments. After five years the ARM borrower also owes slightly less — $373,526.60 against $377,476.22.

Then year 5 arrives. Suppose the index has risen two points, so the fully indexed rate is about 8.45% — but the initial cap holds the first adjustment to 8.29%. The payment is recalculated on the $373,526.60 balance over the remaining 25 years: $2,955.06 a month — $481.78 more than the ARM's start payment, a 19.5% jump in a single month, and $229.07 more than the fixed loan's payment.

Now the worst case. If the rate hits the lifetime cap of 11.29%, the payment on the same balance over 25 years is $3,739.56 a month — $1,266.28 above the start payment, a 51.2% increase, and $1,013.57 more than the fixed loan every month. Test your finances against $3,739.56, not the $2,473.28 start payment.

The Break-Even: How Long Before the ARM Costs More?

The ARM's pitch is five years of cheaper payments — how long the higher payments after year 5 take to eat those savings depends on what the index does:

If the index rises two points and holds, the ARM runs at 8.29% from year 5 onward. The $15,162.49 saved in the first five years is erased after about 66 more months, because the ARM now costs $229.07 a month more than the fixed loan. Cumulative payments cross in month 127 — about 10 years and 7 months in. Over 30 years the ARM costs $53,559 more ($1,034,916 against $981,357).

If the rate hits the lifetime cap of 11.29% from year 5, the ARM costs $1,013.57 a month more than the fixed loan, and the five years of savings are gone in 15 months. Cumulative payments cross in month 75 — about 6 years and 3 months in — and over 30 years the ARM would cost $288,908 more. This is the pessimistic case, but it is the one your finances must survive.

If the index never rises, the ARM stays at 6.29% for all 30 years and saves $90,975 in total — the outcome ARM borrowers are betting on. The practical rule: move or refinance within five years and the ARM's $253-a-month saving is close to free money; stay seven to ten years and it is a coin flip on the index; past ten years, the fixed loan is the better bet unless rates fall.

Who Should Pick Fixed, and Who Should Pick an ARM

Your situation	Pick	Why
Staying in the home 10+ years	Fixed	Past the ~10.6-year break-even, fixed is cheaper
Moving or refinancing within 5 years	ARM	You keep the saving and exit before any adjustment
Income rising; the lower payment unlocks the purchase	ARM, with care	Only if you can afford the $2,955 adjusted payment today
You need a payment that never changes	Fixed	The ARM can rise 19.5% at the first adjustment, 51.2% at the cap
You expect rates to fall and will refinance	ARM	The low start rate pays you while you wait
Stretching to afford the home at all	Fixed	If the start payment is a stretch, the adjusted one is unaffordable

Five Mistakes That Cost ARM Borrowers Money

1. Only looking at the start rate. The 6.29% is a five-year teaser, not the loan. Judge the ARM on the adjusted payment ($2,955.06 at 8.29%) and the worst case ($3,739.56 at the cap) — if you cannot afford the worst case, you cannot afford the loan.

2. Ignoring the caps. The caps are the contract: a 5/6 ARM with 2/1/5 caps can rise two points at the first adjustment and five over its life, while a 7/6 with 5/1/5 caps can jump five points at once.

3. Assuming you will refinance. Refinancing needs rates to fall, your home to hold its value, your credit to stay clean and a lender to approve you — and in the week ending October 30, 2026, refinance applications were 60% below a year earlier (MBA). A plan that only works if you refinance is not a plan.

4. Forgetting the margin. The margin never changes and it is the floor your rate can never fall below — a loan with a 2.75% margin can never adjust below 2.75% — and a half-point higher margin is a half-point on every payment after year 5.

5. Comparing the ARM with the wrong fixed loan. The honest comparison is against a 30-year fixed, because that is the loan you would take instead. Comparing the ARM's start rate with a 15-year fixed, or with a fixed rate that includes discount points, flatters the ARM.

Frequently Asked Questions

Is a fixed or an adjustable-rate mortgage better right now?

It depends on how long you keep the loan. At 7.24% fixed against a 6.29% ARM start, the ARM saves $252.71 a month for five years — but if the index rises two points the payment jumps to $2,955.06, and the ARM costs more in total after about 10 years and 7 months.

What is a 5/6 ARM?

An adjustable-rate mortgage with the rate fixed for the first 5 years, then adjusting every 6 months. After that the rate is the index (usually 30-day average SOFR) plus a fixed margin, limited by caps — typically 2/1/5.

How much can my ARM payment go up?

On a $400,000 loan starting at 6.29% with 2/1/5 caps, the first adjustment can take the payment to $2,955.06 — a 19.5% rise. At the lifetime cap of 11.29% it reaches $3,739.56, a 51.2% rise.

What are ARM rate caps?

Three limits in the loan contract: the initial adjustment cap (commonly 2 points on a 5/6 ARM), the periodic cap (commonly 1 point per reset), and the lifetime cap (commonly 5 points above the start rate). Confirm them on your Loan Estimate — they vary by lender.

Can I refinance out of an ARM before it adjusts?

Yes — if rates have fallen, your home has held its value, your credit is clean and a lender approves you. None of that is guaranteed, and refinancing costs fees. Never take an ARM on the assumption that refinancing will be available.

Why is the ARM share of applications rising?

Because the gap is wide: in the Mortgage Bankers Association survey for the week ending October 30, 2026, the 5/1 ARM averaged 6.29% against 7.30% for a 30-year fixed, and ARMs reached 11.4% of applications, the highest share since September 2025.

Sources: Freddie Mac Primary Mortgage Market Survey, 30-year fixed 7.24% for the week of October 29, 2026 (6.17% a year earlier), 7.18% in the week of November 5, 2026; Mortgage Bankers Association Weekly Mortgage Applications Survey, week ending October 30, 2026, released November 4, 2026 (5/1 ARM 6.29%; 30-year conforming fixed 7.30%; ARM share 11.4%, highest since September 2025; refinance applications 60% below a year earlier); Freddie Mac no longer publishes a weekly ARM average, so the MBA 5/1 ARM average is used as the example start rate; Consumer Financial Protection Bureau, Consumer Handbook on Adjustable-Rate Mortgages; Fannie Mae Standard ARM Plan Matrix (5/6 ARM, 2/1/5 caps; 30-day average SOFR index); Federal Reserve Bank of New York (30-day average SOFR about 3.70%, late September 2026). All payments were verified by independent amortisation calculation on a $400,000 loan over 30 years; adjusted payments assume the balance after 5 years at the start rate, re-amortised over the remaining 25 years. This article explains the maths and is not financial advice — confirm your rate with a licensed lender before you buy.

Related reading: Are Mortgage Points Worth It? The Break-Even Test on a $400,000 Loan · How to Calculate Mortgage Refinance Savings · How Much House Can I Afford? The 28/36 Rule, Worked Out