ARM vs. FRM: Which is Right for Me?

Adjustable-rate mortgages (ARM) and fixed-rate mortgages (FRM) are the two most common loan types, so, chances are, if you’re considering a home purchase, you’re faced with this big question: “Should I choose an adjustable-rate mortgage or fixed-rate mortgage?” You’re wise to consider your choice carefully, as it has substantial ramifications on your finances, both now and in the future.


ARM vs FRMAdjustable-rate mortgages have interest rates that fluctuate after an initial fixed period, and these fluctuations are based on several factors. When your rate changes, your mortgage payment may also change, sometimes a considerable amount. While initial interest rate terms and adjustment rate terms vary, most ARMs are fixed for 5 to 7 years, then adjust every year. There’s always a yearly cap and a total lifetime cap on the amount your rate can change. You’ll be provided with all this information to consider when you’re shopping for a loan.

There’s always a yearly cap and a total lifetime cap on the amount your rate can change. You’ll be provided with all this information to consider when you’re shopping for a loan.


Fixed-rate mortgages have a single fixed-interest rate for the life of the loan. No matter what happens in the market, your payment on a fixed-rate mortgage will not change.

ARM vs. FRM: What to Consider

Like any product, both ARMs and FRMs have their place in the market, and several factors should go into your decision. Here’s a list of questions you need to be ready to answer, as they’ll ultimately guide to the right choice for you.

1. How long do I plan to stay in this home?

Because an ARM offers you a lower initial interest rate, it makes good financial sense to go with an ARM if you plan to move again before the initial interest rate ends. Doing so can save you thousands over an FRM. Because the average American moves once every five years, chances are good that an ARM is a good fit for you. However, if you plan to stay in your home for a considerably longer period of time, then it might make sense to consider a fixed rate.

2. Can I afford the increased payment once my rate begins to adjust?

If you know that your income is likely to continue to increase, or you are confident that you can afford the maximum monthly payment you may have to shell out (your lender or broker can provide you with this information), then you may still want to consider an ARM even if you plan to be in your home for much longer than five years. You can save a great deal of money during the initial rate period, and you always put extra money toward the principal during this time to reduce your overall payments after the initial rate period ends.

3. Will I be taking on any additional debts in the foreseeable future?

Are you planning to have children soon? Will you be sending a child to college? Do you have retirement plans in the near future? If you know your income situation will substantially change or that you’ll be taking on some serious debt, it’s wise to consider all these variables as you make your decision. If you are comfortable with how much your mortgage may increase later, you might go with an ARM and consider socking away the extra money that you save now in order to better afford those future plans. If you future debts are largely unknown, and you prefer not to take the risk of owing more than you can afford, an FRM may make more sense.

4. Am I comfortable with the idea of refinancing my loan at the end of the initial rate term?

Many people choose an ARM with an eye toward refinancing the loan once the initial rate term ends—or at such time when they are no longer happy with their new rate. This can be a sound strategy—you can refinance and get into a fixed-rate loan or even another adjustable-rate loan. Over time, the savings are potentially quite large. However, it’s important that you keep in mind that you must requalify for a mortgage all over again when you refinance, so if your personal financial situation has changed for the worse, you may have trouble getting better terms.

It’s All About You

In the end, whether you choose an ARM or an FRM really has to do with your personality and the level of risk you are comfortable with. I look at fixed-rate loans like an extended warranty on a television set—you purchase the warranty for peace of mind, but the chances are excellent you’ll never use it, and, as a result, you’ve shelled out more than you need to. In general, I recommend an adjustable-rate loan to anyone who is comfortable with the terms. They simply aren’t as volatile as everyone thinks, and you always have the option to refinance as well as the protection of yearly and lifetime caps.

Next Steps

Still not sure whether an ARM or FRM is right for you? This is a big decision, and it’s one you can’t truly make until you understand all the numbers specific to your situation. It’s also important to look at your entire financial picture as well as your future plans. This is where Villa Nova Financing Group excels—we don’t just get you into the best or easiest mortgage loan for you right now. We help you make the best choice for your financial future. Give us a call today for a free consultation.

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We invite you to speak with one of our commercial or residential mortgage experts about your financial and lifestyle goals. This no-obligation consultation can be held over the phone or in our Warren, NJ, office.

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