Fixed vs adjustable-rate mortgage
By David Chen · Published October 9, 2026
An adjustable-rate mortgage trades certainty for a discount. You accept a rate that will change at a date written into the contract, and in exchange you pay less until it does. The discount is easy to see and the risk is easy to defer, because it lands years later on a payment that the lender, not you, will recalculate.
What follows prices both halves on one loan: $320,000 over 30 years. The adjustable version starts at 6.00% and is fixed for the first five years. The comparison is the same amount on a 30-year 6.50% fixed loan.
The two loans, side by side
| 5/1 adjustable at 6.00% | 30-year fixed at 6.50% | |
|---|---|---|
| Payment during the first five years | $1,918.56 | $2,022.62 |
| Balance at the five-year mark | $297,774 | $299,555 |
| Payment after the reset, at 7.50% | $2,200.52 | $2,022.62 |
| Total interest over 30 years | $455,271 | $408,142 |
$320,000 over 30 years. The adjustable loan is modelled with a single reset at month 61, when the remaining balance is re-amortised over the remaining 25 years at the rate shown. Produced by our calculator and independently recomputed.
Read the first two rows together and the discount is clear: $104.06 a month, and the balance also ends up $1,781 lower after five years, because a lower rate retires principal faster. Read the last two rows and the picture changes — at a 7.50% reset the adjustable loan costs $47,128 more over its life.
What the reset does to the payment
The reset is the whole risk, and it arrives with both a new rate and a new schedule. The balance is re-amortised over the years that remain, so the payment is not just the old payment scaled by the rate change:
Going from $1,918.56 to $2,200.52 is a 14.70% increase, or $281.96 a month. On a payment that has already been running for five years, that is a meaningful step — and it is not a step that can be negotiated, because it is arithmetic rather than policy.
What if the rate lands somewhere else?
The reset rate is the one input nobody controls, so the honest way to present the decision is across a range rather than as a single forecast:
| Rate at the reset | Payment from month 61 | Change from $1,918.56 | Total interest over 30 years | Against the fixed loan |
|---|---|---|---|---|
| 6.00% — unchanged | $1,918.56 | — | $370,682 | −$37,460 |
| 6.25% | $1,964.32 | +$45.76 | $384,411 | −$23,732 |
| 6.50% — the fixed loan's own rate | $2,010.59 | +$92.03 | $398,291 | −$9,851 |
| 6.75% | $2,057.35 | +$138.79 | $412,320 | +$4,178 |
| 7.00% | $2,104.60 | +$186.04 | $426,495 | +$18,353 |
| 7.50% | $2,200.52 | +$281.96 | $455,271 | +$47,128 |
| 8.00% | $2,298.27 | +$379.71 | $484,594 | +$76,452 |
The fixed period is 6.00% in every row; only the rate applied to the remaining balance changes. The comparison column is against $408,142 of interest on the 30-year fixed at 6.50%, so a negative figure means the adjustable loan costs less. Produced by our calculator and independently recomputed.
The crossover falls between 6.50% and 6.75%. Below it the adjustable loan wins over thirty years; above it the fixed loan does, and the losses grow quickly — $4,178 at 6.75%, $47,128 at 7.50%, $76,452 at 8.00%. Notice also that the payment crossover sits in the same band: at 6.50% the adjustable payment of $2,010.59 is still $12.03 below the fixed payment, and at 6.75% it is $34.74 above it.
How long the discount survives
The five years at 6.00% save $6,243.60. That saving is not destroyed at the reset; it is spent, month by month, by the higher payment that follows:
| Rate at the reset | Extra per month vs the fixed loan | Time to spend the $6,243.60 |
|---|---|---|
| 6.75% | $34.74 | 180 months |
| 7.00% | $81.98 | 76 months |
| 7.50% | $177.90 | 35 months |
| 8.00% | $275.65 | 23 months |
The saving is the $104.06 monthly difference over 60 months. The erasure time is that saving divided by the extra monthly cost after the reset, ignoring the small balance difference between the two loans. Produced by our calculator and independently recomputed.
What this model deliberately leaves out
- Subsequent adjustments. Real adjustable loans typically keep adjusting on a schedule after the first reset. The model applies one change and holds it. That is a simplification, but it is not the one that decides the direction — the sign of the comparison is set at the first reset and later moves scale it rather than reverse it.
- Caps and the margin. Loans include periodic and lifetime limits on how far the rate can move, and a margin added to a published index. Those terms are what determine your actual reset. They are in the loan documents; the CFPB's material on adjustable-rate mortgages is the right place to read about how they work.
- Refinancing before the reset. Many borrowers with an adjustable loan intend to refinance into a fixed loan before the fixed period ends. That is a real strategy, and it depends on rates, on your equity and on your income at that time — it is a plan rather than a feature of the loan.
- Where rates go. Nothing here forecasts them. The range in the table exists precisely so the decision can be read without a forecast.
How to decide
- Start from the reset payment, not the introductory one. Test whether the payment at a plausible reset rate is affordable before deciding whether the discount is worth it. The mortgage calculator will price the loan at the higher rate so you can look at that number directly rather than reasoning about it.
- Check it against your income and debts. A payment that would push you over the limits in the debt-to-income guide is a problem whether or not it is currently affordable.
- Be honest about the holding period. The discount is worth having for exactly the length of the fixed period. If your plans and the fixed period are the same length, the mismatch risk is small.
- Price the fixed alternative properly. The gap between the two rates is the size of the discount, and it varies by lender and by day. A smaller gap makes the fixed loan far more competitive at the crossover, and 15 versus 30 years covers what the term itself does to the same comparison.
One related decision worth making at the same time is the down payment, since it changes both the loan amount and whether mortgage insurance applies — and insurance is a cost that does not care which rate structure you chose.
The short version
On $320,000 over 30 years, a five-year fixed period at 6.00% costs $1,918.56 a month against $2,022.62 for a 30-year fixed at 6.50%, saving $6,243.60 and reducing the balance by an extra $1,781. If the rate resets to 7.50% the payment becomes $2,200.52, the saving is spent within 35 months, and the loan costs $47,128 more over its life. The crossover is between 6.50% and 6.75%. The discount is genuine; the question is whether the fixed period is as long as your plans.
Frequently asked questions
Is an adjustable-rate mortgage cheaper than a fixed one?
For as long as the initial rate lasts, yes. On a $320,000 loan at 6.00% against a 30-year fixed at 6.50%, the payment is $1,918.56 rather than $2,022.62 — $104.06 less, or $6,243.60 over five years. Whether it is cheaper overall depends entirely on what the rate does at the reset. If the rate comes back at 6.50% the adjustable loan still wins by $9,851 over thirty years; at 6.75% it loses by $4,178, and at 7.50% it loses by $47,128.
What rate does the adjustable loan have to reset to for the fixed one to win?
On this example the crossover sits between 6.50% and 6.75% — and remarkably, the payment crossover falls in the same band. At 6.50% the adjustable payment after the reset is $2,010.59, still $12.03 below the fixed payment of $2,022.62. At 6.75% it is $2,057.35, which is $34.74 above. So on these assumptions the same threshold decides both the monthly payment and the thirty-year total.
How quickly does the higher payment wipe out the savings?
It depends on the size of the reset. The five years at 6.00% save $6,243.60. At 7.50% the payment is $177.90 higher, which erases that in 35 months — just under three years. At 8.00% it is $275.65 higher and the saving is gone in 23 months. At 7.00% it takes 76 months, and at 6.75% essentially the whole remaining term. The saving is real; it is also finite, and it is spent down by the very thing you are being compensated for risking.
Do the caps and the index change this?
Yes, and they are the reason a real adjustable loan is less risky than the model above suggests. Real loans have periodic and lifetime caps that limit how far the rate can move, and a margin added to a published index that sets where it lands. Those terms decide the actual reset, and they are in your loan documents rather than in any general description. This page models one reset to a stated rate so the arithmetic is checkable; read your caps and margin to see how far from that your own loan could go.
When does an adjustable-rate mortgage make sense?
When the fixed period covers the time you expect to hold the loan, and when a higher payment later would still be affordable. The value of the fixed period is that you get the lower rate for exactly as long as you need it; the risk is that life changes and you are still there when it ends. If you are close to certain of a sale or a move inside five years, the exposure is short. If the only reason it works is that the current payment is easier to make, the rate after the reset is the number to test first.
Related guides
- How to refinance a mortgage — Why a lower rate can still cost you more: a 6.50% to 6.00% refinance cuts the payment by $371.38 and adds $93,849 of interest, while the same rate on a 20-year term saves $17,788.
- 15-year vs 30-year mortgage — The same loan on both terms, side by side: what the shorter term saves, what it costs each month, and the affordability test that decides it.
- APR vs interest rate — What each number actually measures, what APR leaves out, and the cases where comparing APR will lead you to the wrong lender.
- How to compare loan offers — Why the headline rate is not the comparison, the three numbers that are, and how to work out whether discount points are worth paying.
Run your own numbers in the loan calculator.
Calculators for this topic
- Mortgage calculator — Monthly payment with property tax, home insurance, HOA and PMI folded in — the number that actually leaves your account, not just principal and interest.
- Amortization schedule — The full month-by-month and year-by-year breakdown of a fixed-rate loan, and how much interest an extra payment removes from the end of it.
- Home affordability calculator — Works the mortgage question backwards: start from your income, debts and down payment, and find the price you can actually carry rather than the price a lender will approve.
This guide is educational and is not financial advice. Figures were produced by our calculator and independently recomputed before publication; your lender's own documents govern your loan. Spot an error? Tell us — see also our disclaimer.