Last reviewed: 3 October 2026
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Fixed-rate and adjustable-rate mortgages: how they differ
The two basic mortgage rate types behave differently after closing. This page sets out how the CFPB describes each one, with the same level of detail. It does not recommend or rank either.
What this term means: An adjustable-rate mortgage (ARM) is a loan whose interest rate can change after an introductory period. A fixed-rate mortgage keeps one rate for the whole loan. The CFPB says part of an ARM’s rate is tied to a broader measure of interest rates called an index, and the margin is a number of percentage points the lender adds to the index.[1]
The two structures, described the same way
| Fixed-rate mortgage | Adjustable-rate mortgage (ARM) | |
|---|---|---|
| The interest rate | Set when you take out the loan and does not change.[1] | May go up or down. Most ARMs have two periods: an introductory first period in which the rate is fixed, then a period in which it changes regularly with the market.[1][3] |
| Length of the introductory period | Not applicable: the rate does not change. | The initial rate may stay the same for months, one year, or a few years.[1] |
| How the rate is set | The rate is set at closing.[1] | Your actual rate and the time of change are based on the new index plus a set margin, subject to any caps.[1] |
| Principal and interest payment | Stays the same.[3] | Can increase or decrease over time. The CFPB says that after the introductory period the payment is likely to go up,[1] and that it could go up a lot, even double.[3] |
| When the index falls | Not applicable: no index. | The CFPB says the payment may sometimes go down, but that is not true for all ARMs.[1] |
| Limits on rate changes | Not applicable: the rate does not change. | Some ARMs set a cap on how high the rate can rise at any time or over the life of the loan, and some also limit how far it may fall. Caps may differ for the first change and later changes.[1] |
| Other things that can change the total monthly payment | Property taxes, homeowner’s insurance or mortgage insurance going up or down.[3] | The CFPB’s ARM pages used here do not list these separately; see our guide to why a mortgage payment can change. |
| Required notice before a rate change | The CFPB notice page used here addresses ARMs only. | The servicer is generally required to send an estimate of the new payment: seven to eight months before the first payment at the new rate for the first reset, and two to four months before for later resets that change the payment.[2] |
What the CFPB says to find out about an ARM
Before taking out an ARM, the CFPB says to find out:[1]
- how high or low your interest rate and monthly payments can go with each adjustment;[1]
- how frequently your interest rate will adjust;[1]
- how soon your payment could go up;[1]
- whether there is a cap on how high the rate could go, and a limit on how low;[1]
- whether you could still afford the loan if the rate and payment go up to the maximums in the loan contract.[1]
The CFPB also says not to assume you will be able to sell your home or refinance before the rate changes, because the value of your property could decline or your financial condition could change.[1]
What the CFPB says to check on any loan, fixed or adjustable
The CFPB says to watch for features that could surprise you later: a prepayment penalty, a balloon payment, negative amortization, or an interest-only loan.[3] If a loan has such a feature, the CFPB says to ask the loan officer why, and to ask for another Loan Estimate for a loan without it, so you can see the difference in costs.[3] See how to read your Loan Estimate.
The CFPB also says the choice of interest rate type affects whether your rate can change, whether your monthly principal and interest payment can change and by how much, and how much interest you pay over the life of the loan.[3] Loan term and loan type are separate choices; see conventional, FHA, VA and USDA loans.
How to verify this yourself
Read the three CFPB pages in the reference list; they are the source for every statement above. To see which rate type you have or are being offered, read the loan documents and ask the lender to state the rate type in writing. For an ARM, ask for the index, margin, caps and adjustment schedule. If you already have a loan and received a rate-change notice, a HUD-approved housing counselor can help you read it (see how to find one). Our published standard covers how we check individual loan originators; it does not grade loan products, and the Register reports on originators, not on loan types.
What this page does not cover
This page is general information, not financial or legal advice. It does not say which rate type suits any borrower; that depends on your facts and the terms you are offered. It gives no current rates, sets no lenders side by side and has no calculator. It does not cover hybrid or payment-option ARM variants, rate-lock rules or refinancing. The CFPB pages were last modified between February 2024 and May 2026. This page was last reviewed 3 October 2026.
Your next step
Find the rate type in your loan documents or Loan Estimate. If you are looking at an ARM, put the CFPB’s questions above to the lender in writing and keep the answers. Return to the Mortgage help library for related guides.