Fixed Vs Adjustable

Fixed-rate mortgages lock your interest rate for the entire loan. The principal-and-interest part of your payment is predictable from month 1 to month 360. Your full monthly housing payment can still change if it includes escrow for property taxes, homeowners insurance, mortgage insurance, or other housing costs. Taxes and insurance can rise even when the interest rate is fixed, so budget for total PITI, not just principal and interest.

Adjustable-rate mortgages (ARMs) start with a lower rate — often 0.5-1% below fixed — but reset after an initial period (typically 5 or 7 years). A "5/1 ARM" means fixed for 5 years, then adjusts annually.

ARMs are a calculated bet. If you'll sell or refinance within the fixed period, you save money. If rates spike and you're still holding the loan, your payment could jump hundreds of dollars per month. The 2008 crisis was partly fueled by ARMs resetting on people who couldn't afford the higher payments.