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Fixed-Rate vs. Adjustable-Rate Mortgages (ARMs)

Fixed-rate and adjustable-rate mortgages are two of the most popular loan types for buying a home or refinancing your mortgage (including cash-out refinances). Both options are available for conventional conforming loan amounts, jumbo (non-conforming) loan amounts, and FHA or VA programs.



Fixed-rate mortgage
Adjustable-rate mortgage (ARM)
Features Features
  • Your interest rate and monthly principal and interest (P&I) payments remain the same for the life of your loan. 
  • Available in a variety of loan term options. 
  • You may be able to add extra features such as a temporary buydown
  • Your interest rate and monthly principal and interest (P&I) payments remain the same for an initial period of 5, 7, or 10 years, then adjust annually. 
  • Loans available in a variety of longer terms. 
  • Includes an interest rate cap that sets a limit on how high your interest rate can go.
Benefits Benefits
  • Predictable monthly P&I payments allow you to budget more easily. 
  • Protection from rising interest rates for the life of the loan, no matter how high interest rates go. 
  • May be a good choice if you plan to stay in your home for a long time.
  • Typically ARMs have a lower initial interest rate than on a fixed-rate mortgage. 
  • The interest rate cap limits the maximum amount your P&I payment may increase at each interest rate adjustment and over the life of the loan. 
  • May provide flexibility if you expect future income growth or if you plan to move or refinance within a few years.
Considerations Considerations
  • The overall interest you pay is higher on a longer-term loan than on a shorter-term loan. 
  • On a shorter-term loan, the monthly P&I payment is typically higher than on a longer-term loan.
  • Monthly principal and interest payments may increase when the interest rate adjusts. 
  • Your monthly principal and interest payments may change every year after the initial fixed period is over.
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Conventional conforming mortgage
A mortgage that is not obtained under a government program (such as FHA or VA). It also satisfies the standard underwriting guidelines and loan amount limits set by the quasi-government agencies, Fannie Mae and Freddie Mac. These loans, therefore, can be sold to either of these two agencies in the secondary market.

Principal and interest (P&I)
The 2 main components of your monthly payment. The principal portion reduces your loan balance, while the interest is your cost for using the principal. Your monthly payments may include taxes and insurance in addition to P&I.

Interest-rate cap
A limit on the amount your interest rate can increase. Periodic caps limit the increase from 1 adjustment period to the next. Lifetime caps limit the increase over the life of the loan.