Fixed vs Variable Mortgage: Key Differences Explained
Compare fixed-rate and variable-rate mortgages to understand which loan type fits your financial situation and risk tolerance.
Quick Answer
Choose fixed for payment stability; choose variable if you plan to sell or refinance before the adjustment period begins.
| Feature | Fixed-Rate Mortgage | Variable-Rate Mortgage |
|---|---|---|
| Interest rate stays the same for the entire term | Interest rate fluctuates with the market | |
| Monthly payment is predictable | Monthly payment can increase or decrease | |
| Typically higher initial rate | Typically lower initial rate | |
| No benefit when rates drop | Payments decrease when rates drop | |
| Best for long-term stability | Best for short-term ownership or falling-rate environments |
A fixed-rate mortgage locks in your interest rate for the life of the loan, giving you predictable monthly payments. This is the most popular choice for homebuyers who plan to stay in their home long-term and want budgeting certainty.
A variable-rate mortgage (ARM) starts with a lower introductory rate that adjusts periodically based on a benchmark index. While the initial savings can be significant, your payment may rise substantially if rates increase.
When to Use Fixed-Rate Mortgage
- You plan to stay in the home for more than 7 years
- You prefer predictable monthly payments
- Interest rates are historically low
When to Use Variable-Rate Mortgage
- You plan to move or refinance within 5-7 years
- You want a lower initial monthly payment
- You expect interest rates to decrease
Worked Example
A $300,000 loan over 30 years with fixed at 6.5% vs variable starting at 5.5%.
Fixed-Rate Mortgage
Fixed payment: $1,896/month for the entire term.
Variable-Rate Mortgage
Variable starts at $1,703/month but could rise to $2,100+ after adjustment.
The variable saves $193/month initially but carries risk of higher future payments.
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Frequently Asked Questions
Can I switch from variable to fixed?
Yes, you can refinance from a variable-rate to a fixed-rate mortgage, though you will pay closing costs.
How often does a variable rate adjust?
Most ARMs adjust annually after an initial fixed period of 3, 5, 7, or 10 years.
Is a fixed rate always higher?
At the start, yes. Fixed rates include a premium for the guarantee of rate stability.