Fixed vs Adjustable-Rate Mortgage

ARMs are quoted as two numbers, like 5/6 or 7/6: the first is the years of fixed rate, the second is how often it adjusts afterward (in months).

After the fixed period, the rate equals an index (commonly SOFR) plus a fixed margin, subject to caps — an initial adjustment cap, a periodic cap, and a lifetime cap.

Those caps matter. A loan with a 2/1/5 cap structure can rise 2 points at first adjustment, 1 point per adjustment after, and 5 points over the life of the loan.

You expect to sell or refinance before the fixed period ends — for example, a planned relocation in five years.

The initial ARM rate is meaningfully below the 30-year fixed rate, and the savings during the fixed period are worth the later uncertainty.

You can comfortably afford the payment at the lifetime cap, not just the teaser rate. If that number scares you, take the fixed loan.

You plan to stay long-term, or you simply want a payment that never changes.

You're stretching your budget. Predictability is worth more than a short-term discount when there's little cushion.

Rates are relatively high and expected to fall — you can refinance a fixed loan downward later, so you're not locked into today's number forever.