Fixed vs ARM Mortgage Comparison
Freddie Mac PMMS Apr 2026
5/1 ARM typical 0.5-1% below fixed
Rate scenario after ARM reset
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How to use
- 1 Enter loan amount and down payment.
- 2 Enter the fixed-rate option (e.g., 6.30% for 30-year fixed) and the ARM intro rate (typically 0.5-1.0% lower, e.g., 5.50%).
- 3 Enter ARM intro period (5, 7, or 10 years) and your expected stay/refinance period.
- 4 Enter assumed adjustment rate after intro period (use current 1-year Treasury + ARM margin, typically 2.5-3% margin).
- 5 Click Calculate to see total cost under each scenario, monthly payment differences, and savings under various rate-rise assumptions.
About Fixed vs ARM Mortgage Comparison
FAQ
Q What is a 5/1 ARM?
A mortgage with a 5-year fixed introductory rate, then adjusts annually based on an index (typically SOFR) plus a margin (usually 2.5-3.0%). The "5" is the intro fixed period; the "1" is how often it adjusts after. Newer ARMs use 5/6 (adjusts every 6 months after intro). Caps protect against extreme increases.
Q Should I get an ARM or fixed mortgage?
Generally fixed, unless you're confident you'll move/refinance before the intro period ends. ARMs save 0.5-1.0% on rate, but expose you to rate-reset risk. The 2022-2023 rate hikes burned many ARM borrowers. Most fee-only advisors recommend fixed unless you have specific short-term plans.
Q How much can my ARM rate increase?
Limited by caps. Standard 2/2/5: 2% max initial adjustment (after intro period), 2% max per annual adjustment, 5% lifetime cap above starting rate. So a 5.5% ARM intro could max at 10.5% over its life. ARM disclosure forms show worst-case payment scenarios — read carefully before signing.
Q What index do US ARMs use now?
SOFR (Secured Overnight Financing Rate) — replaced LIBOR in 2023 after LIBOR phase-out. Some ARMs use 1-year Treasury constant maturity. SOFR runs about 0.1-0.2% above the Fed Funds rate. Other indexes (12-month moving average SOFR, 30-day SOFR) exist for specific products. Confirm in your loan disclosure.
Q Can I refinance an ARM to a fixed?
Yes — anytime, as long as you qualify. Common strategy: take an ARM intro rate to save initial money, then refinance to fixed before adjustment if rates remain favorable. Risk: if rates rise sharply (like 2022-2023), refinancing to fixed becomes much more expensive than your ARM was offering. Refinancing costs 2-5% of loan in closing costs.
Q How much does an ARM save vs fixed?
Currently 0.3-0.7% in 2026 (the spread has compressed since 2008 financial crisis). On a $400K mortgage, 0.5% rate difference saves about $115/month (year 1). Over 5 years, that's $6,900 savings — modest, against potential rate reset risk of $300-500/month after intro period.
Q Are ARMs offered in all loan programs?
Most: conventional (Fannie/Freddie), VA, jumbo. FHA also has ARMs. USDA does not — fixed rate only. Some lenders offer interest-only ARMs (interest payment only for first 5-10 years), which carry additional risk and are generally not recommended.
Q What's the difference between 5/1 and 5/6 ARMs?
5/1: adjusts every 1 year after the 5-year intro. 5/6: adjusts every 6 months after. The 6-month version means more frequent rate changes — more risk if rates are volatile. Most modern ARMs are 5/6 since 2023 due to SOFR replacing LIBOR (which used different periods). Functionally similar over a multi-year horizon.
Official resources
CFPB — ARM Loans Explained
Consumer Financial Protection Bureau resource on adjustable-rate mortgages.
Federal Reserve — Consumer Handbook on ARMs
Federal Reserve consumer handbook covering ARM products and rate adjustment mechanics.
NY Fed — SOFR Information
New York Federal Reserve authoritative source for the SOFR index used in modern ARMs.
Freddie Mac — ARM Survey
Weekly Freddie Mac PMMS includes 5/1 ARM rate alongside fixed-rate averages.