With rates coming down to very low, more people will be applying. The obvious question everyone is asking is: what’s the difference between an ARM and a real (regular) mortgage?
Most of the time, “regular mortgage” means a fixed-rate mortgage: one rate, one predictable principal-and-interest payment. An ARM (adjustable-rate mortgage) usually gives you a lower starting rate, but that rate can change later—so your payment can change too.
Below, I’ll show the differences the way lenders and borrowers actually think about them, using simple, round numbers.
The key difference
Fixed-rate mortgage: Your interest rate stays the same for the life of the loan, so your principal + interest payment stays steady.
ARM (Adjustable-Rate Mortgage): Your rate is fixed for a starter period, then it can adjust on a schedule—up or down—based on market rates and the rules in your contract.
Quick note: The examples below show principal + interest only. Taxes, insurance, and HOA (if any) are separate and can change over time. Numbers are rounded to keep the math easy to follow.
How a fixed-rate (regular) mortgage works
A fixed-rate mortgage is built for predictability. You lock the rate at closing, and that rate doesn’t change. Your payment still shifts over time between interest and principal, but the payment amount (principal + interest) stays the same.
Why people choose fixed-rate loans:
- Stable monthly principal + interest payment
- Easy budgeting (especially for long-term homeowners)
- No surprises if market rates rise later
How an ARM works (without the headache)
An ARM has two phases. First, you get a fixed “intro” rate for a set number of years. After that, the rate can adjust on a schedule (often once per year).
ARM terms you’ll see on a loan estimate:
- 5/1 ARM: fixed for 5 years, then adjusts once per year.
- Index + margin: after the intro period, the new rate is usually a market index rate plus the lender’s margin.
- Rate caps: limits on how much the rate can change at the first adjustment, each later adjustment, and over the life of the loan.
Caps are the guardrails. A common cap pattern is written like 2/1/5—meaning the first adjustment can move up to 2%, later adjustments up to 1% each time, and the rate can’t rise more than 5% over the starting rate. Your exact caps depend on the loan.
Simple numbers: $100,000 loan example
Let’s use a clean example so the comparison is obvious:
- Loan amount: $100,000
- Term: 30 years
- Option A: 30-year fixed at 6%
- Option B: 5/1 ARM at 5% for the first 5 years
Monthly payment during the first 5 years (P+I only)
| Loan Type | Rate (Years 1–5) | Monthly Payment (Approx.) | Difference vs. Fixed |
| 30-year Fixed | 6% | $600/mo | — |
| 5/1 ARM (intro period) | 5% | $540/mo | $60/mo less |
In plain terms: during the intro period, the ARM buys you a lower payment. The tradeoff is what happens after the reset.
What happens after the ARM resets (Year 6 scenarios)
After year 5, the ARM rate can change. Here are a few simple “what if” scenarios for year 6. These are still principal + interest only, rounded.
| New ARM Rate in Year 6 | New Monthly Payment (Approx.) | Compared to Fixed ($600) |
| 6% | $590/mo | $10/mo lower |
| 7% | $650/mo | $50/mo higher |
| 8% | $710/mo | $110/mo higher |
| 10% | $830/mo | $230/mo higher |
First 5 years: total paid, interest, and balance (rounded)
| Loan Type | Total Paid (5 yrs) | Interest Paid (5 yrs) | Principal Paid (5 yrs) | Balance After 5 yrs |
| Fixed @ 6% | $36,000 | $29,000 | $7,000 | $93,000 |
| 5/1 ARM @ 5% (intro) | $32,000 | $24,000 | $8,000 | $92,000 |
The pattern is the same almost every time: a lower rate up front usually means less interest in those early years. That’s why ARMs can look great for buyers who plan to move or refinance before the reset.
Same math, bigger loan: what it looks like at $1,000,000
Mortgage payments scale. If you multiply the loan amount by 10, the payment is roughly 10× too. Here’s the same example scaled up.
Here is an example of $1,000,000 loan
| Scenario | Payment per $100,000 | Payment per $1,000,000 |
| Fixed @ 6% (all years) | $600/mo | $6,000/mo |
| ARM @ 5% (years 1–5) | $540/mo | $5,400/mo |
| ARM resets to 7% (year 6) | $650/mo | $6,500/mo |
| ARM resets to 8% (year 6) | $710/mo | $7,100/mo |
Which one is better? It depends on your plan.
The right loan is the one that matches your timeline and your tolerance for payment changes. Here’s a practical way to decide.
A fixed-rate mortgage is usually the better fit if you:
- Plan to stay in the home long-term (think 7–10+ years)
- Want the comfort of one steady payment
- Don’t want to rely on refinancing later
An ARM can make sense if you:
- Expect to sell or refinance before the reset
- Want the lowest payment today and can handle the risk later
- Have room in your budget for a higher payment if rates jump
ARM checklist: what to confirm before you sign
- What is the adjustment schedule (yearly, every 6 months, etc.)?
- What index and margin does the loan use after the intro period?
- What are the caps (first adjustment, periodic, lifetime)?
- What’s the highest possible payment under the caps—and can you afford it?
- Do you have a realistic refinance plan if rates are higher later?
FAQs
Is an ARM “bad” or risky?
Not automatically. It’s just less predictable. If you understand the caps and you can afford the payment in a higher-rate scenario, an ARM can be a smart tool.
Can an ARM payment go down?
Yes. If the underlying index falls, many ARMs can adjust downward too (subject to the rules in your loan).
Why do people choose ARMs?
Mainly for a lower starter rate and lower early payments—especially when they plan to move or refinance before the reset.
What’s the biggest mistake people make with ARMs?
They budget based on the intro payment and never stress-test the reset payment. Always run the worst-case payment under the caps.
Does a fixed-rate mortgage mean my total housing payment never changes?
Your loan payment (principal + interest) stays the same, but property taxes and homeowners insurance can change, which affects your total monthly payment.
Bottom line
A fixed-rate mortgage buys stability. An ARM usually buys a lower payment now, in exchange for the chance of a higher payment later. If you’re not sure you’ll be in the home long-term, an ARM may be worth a look. If you want certainty, fixed-rate is hard to beat.
If you want, you can swap the sample rates above with the exact quotes you’re seeing and keep the same tables—the structure stays the same, and the decision becomes much clearer.
