Fixed-rate vs adjustable-rate

On a fixed-rate loan, the interest rate on the note does not change for the full term. The principal-and-interest payment stays the same. Taxes, insurance, and HOA dues can still move the total amount you pay each month.

People often choose a fixed rate when they want a payment they can plan around for many years. The starting rate is often higher than the introductory rate on an adjustable loan offered at the same time.

An adjustable-rate mortgage, or ARM, starts with a rate that holds for an initial period, such as five or seven years. After that, the rate can change on a schedule. The new rate is typically an index plus a margin set in the contract.

The note also sets caps: how much the rate can move at the first change, at later changes, and over the life of the loan. Those caps limit the size of a jump. They do not promise that the payment will stay where it started.

Compare the fixed rate, the ARM’s introductory rate, how long that rate lasts, and the caps. Then ask how long you expect to keep the loan. An ARM’s lower start can matter more if you sell or refinance before the first adjustment. A fixed rate matters more if you want the same principal-and-interest payment for the whole term.

Neither structure is automatically cheaper. Fees, points, and the index the ARM uses all belong in the comparison. A Loan Estimate is the document that puts those numbers in one place.