# Fixed-rate vs adjustable-rate mortgages

> How fixed-rate and adjustable-rate mortgages compare: ARM index, margin and caps, a worst-case 5/6 ARM payment example, and when an ARM can make sense.

URL: https://mail.mortgage-math-us.com/loan-types/fixed-vs-adjustable-rate/  
Last reviewed: 2026-10-28 · By the MortgageMath US Editorial team

## Quick answer

A fixed-rate mortgage keeps the same interest rate and principal-and-interest payment for the whole term; the 30-year fixed averaged 7.24% in Freddie Mac’s latest survey. An adjustable-rate mortgage (ARM) has a fixed rate for an initial period — five years on a 5/6 ARM — and then resets every six months to an index, 30-day average SOFR on Fannie Mae ARMs, plus a margin. Caps limit each change: on a standard 5/6 ARM the rate can rise 2 points at the first reset, 1 point at each later reset and 5 points over the life of the loan.

## Key facts

| Fact | Value | Source | As of |
|---|---|---|---|
| 30-year fixed average (Freddie Mac) | 7.24% | [Freddie Mac Primary Mortgage Market Survey](https://www.freddiemac.com/pmms) | Week of Oct 29, 2026 |
| 15-year fixed average (Freddie Mac) | 6.6% | [Freddie Mac Primary Mortgage Market Survey](https://www.freddiemac.com/pmms) | Week of Oct 29, 2026 |
| Index on Fannie Mae ARMs | 30-day average SOFR | [Fannie Mae Selling Guide B2-1.4-02](https://selling-guide.fanniemae.com/sel/b2-1.4-02/adjustable-rate-mortgages-arms) | Dec 10, 2025 |
| 5/6 ARM caps: first / later / lifetime | 2/1/5 | [Fannie Mae Standard ARM Plan Matrix](https://singlefamily.fanniemae.com/media/6951/display) | Oct 1, 2021 |
| 7/6 and 10/6 ARM caps: first / later / lifetime | 5/1/5 | [Fannie Mae Standard ARM Plan Matrix](https://singlefamily.fanniemae.com/media/6951/display) | Oct 1, 2021 |

## How the two types differ

With a **fixed-rate mortgage**, the rate is set at closing and never changes. Your principal-and-interest payment is the same in year 1 and year 30; only taxes and insurance in your escrow payment can move. Most fixed loans run 30 or 15 years — see [15-year vs 30-year mortgages](https://mail.mortgage-math-us.com/blog/15-year-vs-30-year-mortgage/).

With an **adjustable-rate mortgage**, the rate is fixed only for an introductory period. After that it resets on a schedule, following a market index. [Conventional](https://mail.mortgage-math-us.com/loan-types/conventional-loans/), [FHA](https://mail.mortgage-math-us.com/loan-types/fha-loans/) and VA loans all come in fixed and adjustable versions. ARMs are named for both periods: a **5/6 ARM** is fixed for five years and then adjusts every six months; 7/6 and 10/6 ARMs are fixed for seven and ten years. Lenders usually price the initial rate below a comparable fixed rate, because you take on the risk of future increases — see [how mortgage rates work](https://mail.mortgage-math-us.com/buying/mortgage-rates/).

## How an ARM’s rate is set

After the fixed period, your rate becomes the **index plus a margin**. The index on Fannie Mae ARMs is the 30-day average SOFR, published by the Federal Reserve Bank of New York. The margin is a fixed number of percentage points set by your lender and printed in your loan documents; it never changes. Index plus margin is the “fully indexed rate.”

Three caps limit how far the rate can move:

*Fannie Mae standard ARM rate caps (Standard ARM Plan Matrix)*

| ARM | First adjustment | Each later adjustment | Over the life of the loan |
|---|---:|---:|---:|
| 5/6 | ±2 points | ±1 point | +5 points over the start rate |
| 7/6 and 10/6 | ±5 points | ±1 point | +5 points over the start rate |

The rate can fall as well as rise, but under Fannie Mae’s plans it can never drop below the margin. Lenders can offer other structures, so read the caps on your own Loan Estimate — it shows the highest rate and payment possible.

## Worst case on a 5/6 ARM

> **Worked example: $400,000 30-year 5/6 ARM at an example start rate of 6.74% — half a point under the 7.24% fixed average, chosen only to illustrate**
>
> | Period | Rate | Monthly principal and interest |
> |---|---:|---:|
> | Years 1–5 (months 1–60) | 6.74% | $2,592 |
> | First adjustment (months 61–66) | 8.74% | $3,084 |
> | Next adjustment (months 67–72) | 9.74% | $3,340 |
> | Next adjustment (months 73–78) | 10.74% | $3,601 |
> | Lifetime cap reached (months 79 onward) | 11.74% | $3,865 |
> 
> A 30-year fixed loan at 7.24% would cost $2,726 a month for the whole term. In this worst case — the index rising enough for every cap to bite — the ARM payment jumps by $493 a month at the first reset and ends $1,274 a month higher than where it started.

The other side of the bet: during the five fixed years the ARM costs $134 a month less — about $8,056 in all — and leaves a balance of $375,461 versus $377,476 on the fixed loan. If you sell or refinance before the first reset, that saving is yours; after it, the payment depends on where the index is. Whether that is worth the risk depends on how long you keep the loan and how much a payment of $3,865 would strain your budget.

> **Watch out: Plan for the capped payment, not the teaser**
>
> Budget as though the ARM reaches its lifetime cap. If that payment would force you to sell or refinance on bad terms, the lower start rate isn’t worth it.

## Fixed vs ARM at a glance

| | Fixed rate | Adjustable rate (ARM) |
|---|---|---|
| Starting rate | Higher | Usually lower |
| Payment | Same for the whole term | Can rise or fall after the fixed period |
| Risk of rising rates | Lender’s | Yours, up to the caps |
| If rates fall | Refinance to benefit | Rate can adjust down after the fixed period |
| Best for | Long stays, tight budgets | Shorter stays, room to absorb increases |

## When an ARM can make sense

- **You expect to move or pay off the loan within the fixed period**, so you may never see an adjustment.
- **You can afford the payment at the lifetime cap**, and the initial savings are meaningful.
- **Your income is set to rise**, for example at the end of training, and you have savings to cover higher payments in the meantime.

An ARM is a poor fit if you are stretching to qualify, plan to stay for decades, or would only be able to keep the house by refinancing — refinancing depends on rates, home values and your credit at the time, none of which you control. Run the numbers in the [refinance break-even calculator](https://mail.mortgage-math-us.com/tools/refinance-break-even-calculator/) before counting on it, and read [ARM risks explained](https://mail.mortgage-math-us.com/blog/arm-risks-explained/).

## Questions to ask before choosing an ARM

When you apply for an ARM, the lender must give you the CFPB’s *Consumer Handbook on Adjustable-Rate Mortgages* (or a suitable substitute). Use it along with your Loan Estimate to get answers to these:

1. What is the index, what is the margin, and what is the fully indexed rate today?
2. What are the first, periodic and lifetime caps, and what is the highest possible payment?
3. Is there a prepayment penalty, and can the loan become interest-only or negatively amortizing? (Neither is allowed on a Qualified Mortgage — see [interest-only mortgages](https://mail.mortgage-math-us.com/loan-types/interest-only-mortgages/).)
4. How much would a fixed-rate loan cost from the same lender, with the same points?

[Open the mortgage payment calculator](https://mail.mortgage-math-us.com/tools/mortgage-payment-calculator/)

## Frequently asked questions

### What does 5/6 ARM mean?

The rate is fixed for the first five years and then adjusts every six months. On a standard Fannie Mae 5/6 ARM the caps are 2/1/5: up to 2 points at the first reset, 1 point at each later reset and 5 points over the life of the loan.

### How high can an ARM payment go?

Up to the payment at the lifetime cap. In the $400,000 example above, starting at 6.74%, the worst case is $3,865 a month, versus $2,592 at the start. Your Loan Estimate shows the maximum for your loan.

### What index do ARMs use now?

Fannie Mae ARMs use the 30-day average SOFR. Your rate after the fixed period is the index plus your lender’s margin, limited by the caps.

### Is a fixed or adjustable rate better?

A fixed rate is better if you value a predictable payment or plan to stay a long time. An ARM can cost less if you sell or pay off the loan before the first adjustment, but you take on the risk of higher payments later.

### Can an ARM rate go down?

Yes. After the fixed period the rate follows the index, so it can fall as well as rise, within the same caps. On Fannie Mae’s standard plans it can’t go below the margin.

### Can I refinance an ARM into a fixed rate?

Usually, if you qualify when you apply — your credit, income, home value and market rates at that time all matter. Plan as though you may have to keep the ARM.

## Sources

- [Freddie Mac Primary Mortgage Market Survey](https://www.freddiemac.com/pmms) — 30-year fixed rate, national weekly average; 15-year fixed rate, national weekly average (Week of Oct 29, 2026)
- [Fannie Mae Standard ARM Plan Matrix](https://singlefamily.fanniemae.com/media/6951/display) — Rate caps on a Fannie Mae 5/6 ARM (first/periodic/lifetime); Rate caps on Fannie Mae 7/6 and 10/6 ARMs (first/periodic/lifetime) (Oct 1, 2021)
- [Fannie Mae Selling Guide B2-1.4-02](https://selling-guide.fanniemae.com/sel/b2-1.4-02/adjustable-rate-mortgages-arms) — Index on Fannie Mae ARMs (Dec 10, 2025)
- [CFPB: Consumer Handbook on Adjustable-Rate Mortgages (CHARM booklet)](https://files.consumerfinance.gov/f/documents/cfpb_charm_booklet.pdf)
- [Fannie Mae Selling Guide B2-1.4-02: Adjustable-rate mortgages](https://selling-guide.fanniemae.com/sel/b2-1.4-02/adjustable-rate-mortgages-arms)
- [Fannie Mae Standard ARM Plan Matrix](https://singlefamily.fanniemae.com/media/6951/display)

_General information, not financial advice._