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Adjustable-Rate vs Fixed-Rate Mortgages

How a fixed-rate mortgage differs from an ARM, including CFPB index, margin, and cap rules. Educational product comparison, not a quote.

Published: 2026-09-14

Key takeaways

  • The CFPB says a fixed-rate mortgage sets the interest rate when you take out the loan and will not change. An adjustable-rate mortgage may go up or down.
  • CFPB consumer tools note that from 2008 to 2022, about 85 to 95 percent of buyers chose a fixed rate, compared with a longer-run historical share nearer 70 to 75 percent.
  • After the introductory period, an ARM rate is typically index plus a lender margin, subject to initial, subsequent, and lifetime caps. The CFPB says a lifetime cap is most commonly five percentage points from the start rate.
  • The CFPB warns not to assume you can sell or refinance before the first adjustment. Affordability has to work at the contract maximum, not only at the start rate.

Published: 2026-09-14

A fixed-rate mortgage and an adjustable-rate mortgage (ARM) price the same house with different risk. One holds the note rate still. The other can reprice after an introductory period.

The CFPB puts the split in one sentence: "With a fixed-rate mortgage, the interest rate is set when you take out the loan and will not change. With an adjustable-rate mortgage, the interest rate may go up or down." This page stays inside that rule. It is not a recommendation to pick either product.

How does a fixed-rate mortgage work?

The note rate is set at origination. Principal and interest stay the same for the life of that loan if you keep the loan. Taxes, insurance, HOA dues, and mortgage insurance can still change the total monthly draft.

You know the scheduled interest cost if you hold the loan to term. You do not get an automatic cut if market rates later sit lower. A later refinance is a new loan with new costs, not a built-in feature of the fixed note.

CFPB owning-a-home tools report that from 2008 to 2022, about 85 to 95 percent of buyers chose a fixed rate. Historically the bureau cites a 70 to 75 percent fixed share. Those are market-share figures, not proof that a fixed loan is cheaper on your file.

How does an ARM set the rate after the start period?

Most ARMs have two periods. The first is a fixed introductory rate that can last months or several years. The second is an adjustment period. The CFPB says many ARMs start lower than a comparable fixed loan, then change on a regular interval, and "the amount of your payment is likely to go up."

The CHARM booklet reads the product label as two numbers. In a 5/1 ARM, the first number is the length of the initial rate. The second number is how often the rate can change after that. A 5/6m ARM would adjust every six months after year five.

After the start period, the new rate is usually an index plus a margin, then limited by caps. The CFPB says the margin is "a number of percentage points added to the index by the lender that sets your interest rate." Some ARMs do not cut the payment even when the index declines.

What ARM caps does the CFPB describe?

The bureau lists three common caps:

  • Initial adjustment cap: how far the first change can move. The CFPB says two or five percentage points is common.
  • Subsequent adjustment cap: how far later changes can move. The CFPB says one or two percentage points is most common.
  • Lifetime adjustment cap: how far the rate can move from the start rate over the life of the loan. The CFPB says five percentage points is most common, and some loans set a different floor on decreases.

Two lenders can quote the same start rate and different caps. The CFPB says to compare caps even if you expect to move before the first adjustment. The contract still has to be payable at the maximum.

Rate note: start rates, caps, and margins are loan terms, not a national average and not a lock until the lender locks them. Nothing here is a guaranteed APR.

What should you line up before you compare?

Hold loan amount, occupancy, and lock period constant. Compare a zero-point fixed Loan Estimate with a zero-point ARM Loan Estimate from the same day when you can. Mix-and-match APRs across products the CFPB already flags as a weak comparison, because an ARM APR does not reflect the maximum rate.

The CFPB tip is direct: "Don't assume you'll be able to sell your home or refinance your loan before the rate changes." Property value and your file can change. If the maximum payment does not fit today's income, the bureau says you may want to consider another loan.

Price both payments in the mortgage payment calculator using the written rates, then read the loan types hub for program context. For how the market level itself is formed, see how mortgage rates are determined.

Disclaimer: this guide is for general education. HomeMortgageOnline is not a lender, broker, or loan originator. It does not take applications, lock rates, or give financial advice. Real offers vary by credit, down payment, loan type, points, fees, and market conditions.

Sources

  1. Consumer Financial Protection Bureau, What is the difference between a fixed-rate and adjustable-rate mortgage (ARM) loan? (last reviewed January 14, 2025) - https://www.consumerfinance.gov/ask-cfpb/what-is-the-difference-between-a-fixed-rate-and-adjustable-rate-mortgage-arm-loan-en-100/
  2. Consumer Financial Protection Bureau, What are rate caps with an adjustable-rate mortgage (ARM), and how do they work? - https://www.consumerfinance.gov/ask-cfpb/what-are-rate-caps-with-an-adjustable-rate-mortgage-arm-and-how-do-they-work-en-1951/
  3. Consumer Financial Protection Bureau, Understand the different kinds of loans available (fixed vs ARM share, 2008-2022) - https://www.consumerfinance.gov/owning-a-home/explore/understand-the-different-kinds-of-loans-available/
  4. Consumer Financial Protection Bureau, Consumer Handbook on Adjustable-Rate Mortgages (CHARM booklet) - https://files.consumerfinance.gov/f/documents/cfpb_charm_booklet.pdf

Frequently asked questions

What is the difference between a fixed-rate mortgage and an ARM?

The CFPB says a fixed-rate mortgage sets the interest rate at origination and will not change. An ARM may go up or down after an introductory period. Principal and interest stay level on a fixed loan. An ARM payment can change when the index plus margin, subject to caps, is recalculated.

What do the numbers in a 5/1 ARM mean?

The CFPB CHARM booklet says the first number is how long the initial rate lasts. The second number is how often the rate can change after that. A 5/1 ARM is fixed for five years, then can adjust once a year. Those labels are product terms, not a quote.

How high can an ARM rate go?

The CFPB describes initial, subsequent, and lifetime caps. A lifetime cap is most commonly five percentage points from the start rate, though some loans use a different cap or floor. Read the Loan Estimate and note. The start rate is not the maximum payment.

Do most buyers choose a fixed-rate mortgage?

CFPB owning-a-home tools say about 85 to 95 percent of buyers chose fixed rates from 2008 to 2022, versus a longer-run historical share nearer 70 to 75 percent. Market share is not a finding that a fixed loan costs less on your file. Compare written estimates.

Should I take an ARM because I plan to move?

This site does not advise yes or no. The CFPB says not to assume you can sell or refinance before the first adjustment. If the contract maximum payment does not fit today's income, the bureau says consider another loan. Compare same-day Loan Estimates.