ARM vs. Fixed Comparison
Fixed-Rate LoanARM payment scenarios assume index rates stay flat, rise 0.5%/yr, or immediately hit the lifetime cap. Actual rates depend on market conditions. This is not a quote.
⚖️ ARM vs. Fixed: Which Is Better?
Choosing between a fixed-rate mortgage and an adjustable-rate mortgage (ARM) is a balance between guaranteed stability and potential savings. A fixed-rate mortgage locks in your interest rate for the life of the loan, while an ARM offers a lower introductory rate that adjusts after a set period.
🏗️ Understanding ARM Structures
The most common ARM is the 5/1 or 7/1. The first number represents the fixed-rate years, and the second represents how often the rate adjusts thereafter. Caps like 2/2/5 protect you by limiting how much your rate can jump at once and over the lifetime of the loan.
💡 When an ARM Makes Sense
An ARM is often a strategic choice if you plan to sell or refinance within 5-7 years, or if you expect your income to increase significantly before the first adjustment period. The initial monthly savings can be substantial compared to a standard 30-year fixed rate.
SOFR (Secured Overnight Financing Rate) is the benchmark interest rate used by lenders to determine your ARM's adjustment. Your rate is calculated as SOFR + Lender Margin. Because SOFR is tied to broader economic conditions, your rate will fluctuate based on the Federal Reserve's monetary policy.