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If you’re buying a home and plan to keep it indefinitely, you might prefer the predictability of a 30-year fixed-rate mortgage. But if you know you’ll be selling and moving out in a few years, an adjustable-rate mortgage (ARM) could be worth a look—especially if ARMs have the best interest rates at the time. Here is how to decide.
Key Takeaways
- ARMs sometimes have lower initial interest rates than fixed-rate loans, but not always.
- If you plan to sell your home in a few years, a low-rate ARM might save you money on interest charges.
- However, once your ARM rate adjusts, it could be more expensive than the fixed-rate alternative in a rising-rate environment. In a falling-rate environment, an ARM could lower costs, though.
Understanding the Basics: What’s the Difference Between an ARM and a 30-Year Fixed?
ARMs start with a fixed interest rate for a set period—such as three, five, or 10 years. After that, their rate—and your monthly payment—will change periodically, based on changes in an underlying index. Many ARMs are tied to the U.S. prime rate or the one-year constant maturity treasury (CMT) index, for example.
A 30-year fixed-rate loan, by contrast, locks in the rate for the next 30 years, so neither your interest rate nor your monthly mortgage payment will change during that time. Fixed-rate mortgages also come with different terms, such as 15 or 20 years.
The 5-Year Plan: Why Timing Can Make an ARM Attractive
ARMs often have lower initial interest rates than fixed-rate mortgages, sometimes referred to as teaser rates. So you may be able to save money on your monthly payments if, for example, you take out a 5-year ARM and sell your home before that introductory period ends and a higher rate kicks in.
What Are the Risks? When an ARM Can Backfire
The danger in taking out an ARM with the idea of selling your home before the initial term is up is that your situation may change. You might want to stay in the home longer, or market conditions could make it difficult to sell.
Similarly, if you hope to refinance the ARM at the end of the initial period, that could be difficult if your financial situation has worsened in the meantime.
However, you should have some protection against unaffordable interest rate hikes in the form of caps that limit how much your rate can rise in any particular adjustment period and how much it can increase in total over the life of the loan.
Tip
Before you agree to an ARM, make sure you know the specifics on its caps.
Could You Save With an ARM in Today’s Market?
As mentioned earlier, ARMs often have interest rates that start out lower than 30-year fixed-rate loans. However, that isn’t always the case.
On July 25, 2025, for example, the average rate on 30-year fixed-rate loans was 6.89% for new purchases and 7.04% for refinances, according to Investopedia’s mortgage rate tracking, while the average rate on a 5/6 ARM (which is fixed for five years but can adjust every six months after that) was 7.35% for new purchases and 7.54% for refinances. So in many cases, the 30-year loan would be slightly cheaper in terms of interest, even if you only keep it for five years. Plus, your rate would never increase.
Those are rate averages for the entire country, however, and rates vary significantly by location and from lender to lender, so it’s always worth shopping around. You might find an ARM with an unusually attractive teaser rate that would make it a better deal if you only plan to stay in your house for 5 years or less. Shorter-term ARMs, like a 3/1 ARM, generally offer lower initial rates than 5/6 or 7/6 ARMs, incidentally.
The Bottom Line
On a national average basis, 5-year ARMs are currently a bit more expensive than a 30-year fixed-rate loan. But that could change in the future, and there are often shorter-term ARM options with even lower rates, typically. There are also likely to be loan rate exceptions depending on the location of the home and the lender. So, if you’re planning to buy a home, it’s a good idea to compare their respective rates periodically before you apply for one type or the other.
Bear in mind that if you do opt for an ARM, it could become more expensive if you keep it beyond the initial rate period, if mortgage rates are rising at that point, and continue to become more expensive with each new adjustment. Conversely, ARMs can provide rate relief when adjusting downward should rates drop. As with all things uncertain, there can be risks or rewards depending on how future economic conditions unfold.
