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Financial Calculators and Articles - Fixed vs. Adjustable-Rate Mortgages (ARM): What’s Best in 2026?

As of 12-15-25

Choosing between a fixed-rate mortgage and an adjustable-rate mortgage (ARM) in 2026 will depend on various factors, including personal financial circumstances, market conditions, and interest rate trends. Here’s a breakdown of both mortgage types to help you decide which might be best for you:

Fixed-Rate Mortgages

Pros:

  1. Stability: Payments remain consistent throughout the loan term, making it easier to budget.
  2. Protection Against Rate Increases: If interest rates rise, your rate stays the same, which can lead to significant savings over time.
  3. Long-term Planning: Ideal for those who plan to stay in their home for many years and want to lock in a low rate.

Cons:

  1. Higher Initial Rates: Fixed rates are generally higher than initial ARM rates, which can lead to higher monthly payments initially.
  2. Less Flexibility: If rates drop, you won’t benefit from lower payment options unless you refinance.

Adjustable-Rate Mortgages (ARMs)

Pros:

  1. Lower Initial Rates: ARMs often start with lower rates compared to fixed-rate mortgages, leading to lower initial monthly payments.
  2. Potential for Lower Costs: If interest rates remain stable or decrease, you may pay less over time compared to a fixed-rate mortgage.
  3. Flexibility: If you plan to move or refinance within a few years, an ARM might save you money in the short term.

Cons:

  1. Rate Increases: After the initial fixed period, rates can increase, leading to higher monthly payments.
  2. Uncertainty: Monthly payments can fluctuate, making budgeting more challenging.
  3. Complexity: ARMs come with terms that can be confusing, such as adjustment periods and caps on interest rate increases.

Considerations for 2026

  1. Interest Rate Environment: As of late 2023, interest rates are relatively high, but predicting future rates is difficult. If rates are expected to decline or stabilize, an ARM could be advantageous.
  2. Your Time Horizon: If you plan on living in your home for a short period (typically less than five years), an ARM might be beneficial due to lower initial payments. If you plan to stay long-term, a fixed-rate mortgage may be better.
  3. Financial Stability: If you have a stable income and can handle potential payment increases, an ARM might be worth considering. If you prefer certainty and security, a fixed-rate mortgage is likely the better choice.
  4. Market Conditions: Keep an eye on economic indicators, such as inflation and economic growth, as these can influence interest rates and the overall housing market.


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