Should you get a fixed or adjustable rate mortgage?

A fixed-rate mortgage locks the interest rate for the full term, so the principal and interest payment never changes. An adjustable-rate mortgage carries a lower introductory rate for an initial period, commonly five, seven, or ten years, after which it resets periodically against an index plus a margin. Modern ARMs include caps limiting how much the rate can move at each adjustment and over the life of the loan, which are the numbers that define your actual worst case and which you should read before signing anything.

The case for fixed is that a mortgage is the largest and longest financial commitment most households make, and certainty about the payment has real value in planning a life around it. The case for an ARM rests entirely on a prediction: that you will sell or refinance before the reset, or that rates will be lower then. Both predictions have failed for large numbers of borrowers, since job changes, family circumstances, and market conditions do not cooperate on schedule, and refinancing requires qualifying again at whatever income, credit, and property value exist at that time. The gap between the two rates has often been modest enough that the certainty is cheap by comparison.

Where an ARM is genuinely defensible: a borrower with high confidence in a short horizon, such as a known relocation, someone with substantial assets who could pay off the balance if rates moved badly, or a period when the initial rate spread is unusually wide. Even then, evaluate the loan by asking what the payment becomes at the maximum permitted adjustment and whether you could absorb it, rather than by the introductory rate. Two structures to be wary of regardless: interest-only periods, which delay principal repayment and leave you with no equity cushion, and any loan with a prepayment penalty, which undermines the refinance plan the ARM depends on.