Fixed-Rate vs. Adjustable-Rate: Which One Is for You?

A recent study reveals that a house in the United States costs $408,800 on average in 2021. With an average yearly salary of $56,310, owning a home without a mortgage is virtually impossible.

During your mortgage application, the lender will ask you to choose between fixed and adjustable-rate loans. Most people choose adjustable-rate mortgages because of the seemingly lower starting interest, but is it the right option for you?

Here are a few things you need to consider when deciding between a fixed-rate loan and an adjustable-rate mortgage.

Total Loan Costs

Fixed-rate mortgages have unchanging interest rates. Regardless of whether your loan term ends in ten or thirty years, your interest rates will remain the same.

A consistent interest rate means you know your exact mortgage loan cost at any time. Aside from that, fixed rates can help you make more informed decisions. When you know exactly how much you need to pay every time, you can get a better picture of whether you are getting the best deal in the long run.

On the other hand, adjustable-rate mortgages (ARM) and their varying interest rates do not offer the same stability. Since rates can change based on the ARM index and ARM margin, you are kept in the dark on the total loan cost after the first few years where the lower interest rate is in effect.

Payment Fluctuations

A unique characteristic of ARM is its ability to lower interest rates within the loan term when the conditions are right. It means you will be making smaller payments as long as the rates are low. However, ARM can also swing in the other direction and make you pay more because of a sudden spike in interest rates.

Fixed-rate mortgages are locked in one interest rate for the entirety of the mortgage term. This means it will never experience a sudden dip in interest rates and lower payment requirements.

However, fixed interest rates are protected from a sudden surge of interest rates. Increasing interest rates can, at times, lead to expensive monthly payments that can disrupt your budget, leading to unnecessary financial sacrifices.

Length of Terms

In theory, one way to maximize the initially lower interest rates is to have shorter mortgage terms. This minimizes the potential impact of interest rate fluctuations on your monthly payments.

While it may be a good strategy on paper, it proves to be problematic in practice since shorter mortgage terms mean larger monthly payments. You may find that the lower initial rates may not do much if you push for shorter loan terms. You can counteract this with a large initial down payment. But both options defeat the purpose of a mortgage—to make buying a home more affordable. 

Fixed-rate mortgages will not put you in the same predicament. The regularity of the payment schedule and the amount you need to pay allows you to plan your payments properly. It also lets you budget your money wisely so you can still save money despite paying off a big debt.


Fixed-rate loans and adjustable-rate mortgages have their advantages and disadvantages. You only have to carefully consider the total loan costs, potential payment fluctuations, and length of terms you want to know which type of interest rate works best for your current financial situation.

If you’re looking for a company that offers fair adjustable and fixed-rate loans in Sacramento, CA, Hawkins Home Loans is at your service. We are a licensed mortgage broker offering a wider range of financing solutions to help you get the home of your dreams. Contact us today to learn more about how we can help you!