Lock It or Go With the Flow: Decoding Fixed vs. Variable Mortgages

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ByChristopher Boston
Reviewed byTimothy Manni
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ByChristopher Boston
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Reviewed byTimothy Manni
Edited byCasie McCoskey
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Updated: March 6, 2024

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Choosing a home is exciting, but before you can unpack those moving boxes, there's an important decision you need to make: Should you choose a fixed-rate or a variable-rate mortgage?

Let's take a step back. A mortgage is a loan that helps you buy a home. The term rate refers to the interest you pay on the loan. When it comes to choosing between a fixed-rate and a variable-rate, the difference lies in whether this interest rate remains constant or can change over time. Understanding these nuances can save you money and ensure that your mortgage aligns with your financial comfort zone. Remember, your choice can affect your financial standing for years to come.

What Is a Fixed-Rate Mortgage?

A fixed-rate mortgage is a home loan where your interest rate doesn't change over time. For example, you can lock in a rate of 3.5% on your mortgage. That means you'll be paying 3.5% interest on your loan for the entire length of the term, whether it's 15, 20 or 30 years.

Types of Fixed-Rate Mortgages

When looking at the options, it's helpful to understand the different types of fixed-rate mortgages available. Knowing these can guide you towards one that fits your financial situation and long-term goals.

Here are a few types of fixed-rate mortgages:

  • 15-Year Fixed Rate: This option allows you to pay off your home in 15 years. The monthly payments will be higher, but you'll pay less interest over the life of the loan.

  • 30-Year Fixed Rate: With lower monthly payments spread out over a longer term, this is a popular choice for those who prefer smaller, more manageable payments.

  • Conforming Fixed Rate: This is a loan that follows the limits set by government-sponsored entities (for 2024, the limit is $766,550). It's a good option if your loan amount falls within these limits.

  • Non-conforming Fixed Rate: Also known as a jumbo loan, this is for home loans that exceed the conforming limits.

Knowing the different types of fixed-rate mortgages can make a difference in your home buying journey. Each option comes with unique features that cater to various financial needs and goals. You can pick a loan structure that best suits your situation, making your pathway to homeownership smoother and more personalized.

Pros and Cons of a Fixed-Rate Mortgage

Let's explore the advantages and potential drawbacks of fixed-rate mortgages. This information will help us understand when a fixed-rate mortgage can be beneficial and when it might present challenges.


Predictability: Fixed-rate mortgages make budgeting easier,
with consistent monthly payments.

Higher Initial Rates: Fixed-rate mortgages may start
with higher interest rates compared to variable rates.

Protection Against Rate Increases: If rates go up,
your payments stay the same.

Locked-In Rates: If rates fall, you're stuck at your
higher rate unless you refinance your mortgage.

Long-Term Security: These loans are great if you plan to stay
in your home for a long time.

Cost of Refinancing: Refinancing to a lower rate in
the future can be costly.

Simplicity: They're easier to understand
than variable-rate mortgages.

Less Flexibility: There's less room to maneuver if your
financial situation changes.

Understanding the ins and outs of a fixed-rate mortgage provides homebuyers more information when considering their options.

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What Is a Variable-Rate Mortgage?

A variable-rate mortgage, also known as an adjustable-rate mortgage (ARM), is a type of home loan where your interest rate can change over time. Let's say your mortgage starts with an interest rate of 2.5%. After a specific period, that rate may increase or decrease based on changes in a reference interest rate, like SOFR or the U.S. Prime Rate.

Types of Variable-Rate Mortgages

Recognizing the types of variable-rate mortgages can help homebuyers make a choice that aligns with their financial circumstances and future plans. If you aren't aware of these variations, you may end up with a mortgage that doesn't fit your needs goals, leaving you in financial hardship.

Here are some of the common types of variable-rate mortgages:

  • Hybrid ARMs: These loans begin with a fixed rate for a few years, then switch to a variable rate. For example, a 5/1 ARM has a fixed rate for five years, then adjusts annually.

  • Interest-Only ARMs: With this type, you pay only interest for a set period, after which your payments increase to include both principal and interest.

  • Payment-Option ARMs: These give you multiple payment options, including paying interest and principal, interest only or a minimum payment.

Being familiar with these variations can show you a clearer path when choosing a variable-rate mortgage. Remember, a well-informed decision today can lead to a more comfortable tomorrow.

Pros and Cons of a Variable-Rate Mortgage

It's worth examining the potential benefits and drawbacks associated with variable-rate mortgages. Considering both perspectives allows you to have a clearer picture of the advantages and risks a variable-rate mortgage offers.


Lower Initial Rates: Variable-rate mortgages often
start with lower rates than fixed-rate ones.

Rate Fluctuations: Your interest rate and monthly
payment can increase over time.

Potential Rate Drops: If interest rates fall, so can your
mortgage payments.

Budgeting Challenges: The changing payments can
make budgeting more difficult.

Rate Caps: Most ARMs have caps that limit how much
your interest rate can increase.

Complexity: They can be harder to understand than
fixed-rate mortgages.

Early Payoff Benefits: If you plan to sell or refinance
before the rate adjusts, you can save money.

Refinancing Risks: If rates rise, refinancing to a
fixed-rate mortgage could be costly.

While they offer an initial lower rate and the chance of reduced payments, variable-rate mortgages also bring potential rate hikes and budgeting challenges. Keeping these factors in mind will help you choose a mortgage that fits your financial roadmap.

Fixed-Rate vs.Variable-Rate Mortgages: Comparing Key Aspects

After an in-depth look at fixed-rate vs. variable rate mortgages, it’s time to compare them side by side. We’ve detailed key aspects that may affect borrowers significantly and used these to delineate the two mortgage types.

Key Aspects
Fixed-Rate Mortgages
Variable-Rate Mortgages

Interest Rates

With a fixed-rate mortgage, your interest
rate is set when you take out the loan
and doesn't change over time.

The interest rate on a variable-rate mortgage
can fluctuate over time based on changes in
the reference interest rate.

Payment Predictability

Fixed-rate mortgages offer predictable payments
that stay the same over the life of the
loan, which can simplify budgeting.

The monthly payments on variable-rate mortgages
can vary as the interest rate changes, making it
harder to predict your budget over the long term.

Market Influence

The fixed rate is unaffected by the future
state of the economy or shifts in the
broader lending market.

Variable rates can go up or down based on
market conditions, potentially leading to
higher or lower payments over time.

Long-Term Cost

If interest rates rise over time, a fixed-rate
mortgage may cost less in the long run.

If interest rates fall over time, a variable-rate
mortgage may end up being less costly.

Risk Level

Fixed-rate mortgages are lower risk because
your payment doesn’t change.

Variable-rate mortgages carry more risk due
to fluctuating payments.

These aspects can illuminate the path to the right decision. Remember, there's no one-size-fits-all answer, and your personal circumstances, goals and risk tolerance will steer your choice.

Beyond Interest Rates: Key Considerations in Your Mortgage Journey

Your financial strategy when choosing between variable vs. fixed-rate mortgages involves more than just comparing interest rates and payment schedules. To truly find the most beneficial fit, there are personal factors to consider. These include the following:

Certainly, here are the expanded explanations:

  • Risk Tolerance: Your ability to absorb financial risk plays a key role in choosing between fixed-rate vs. variable-rate mortgages. With the former, your interest rate stays the same for the entire loan term. It provides a sense of security, particularly if a rise in interest rates might make managing your budget difficult. The latter comes with interest rates that can change over time. Borrowers comfortable with some financial risk may find this a better option, especially if it may result in lower overall costs.

  • Financial Goals: Are you considering a significant financial event in the next few years, like starting a business, investing in education or retiring? A variable-rate mortgage with predictable payments may be advantageous if you anticipate needing financial flexibility. If you have extra funds and want to pay off your mortgage early, a shorter-term mortgage might be a better fit.

  • Income Stability: If you have a steady income, you may be better equipped to handle potential payment increases in a variable-rate mortgage. But if your income is irregular or uncertain, the predictability of a fixed-rate could provide a safer, more stress-free option.

  • Economic Outlook: If you think interest rates will fall or remain low, a variable-rate mortgage could end up saving you money over the long run. However, if you expect rates to increase significantly, a fixed-rate mortgage could help lock in a lower rate now and offer peace of mind.

  • Loan Term: Shorter-term loans may work well with variable rates because of the initial lower interest rates. However, for longer-term loans, such as a 30-year term, a fixed-rate mortgage could offer more stability and protect against potential rate increases over time.

Remember, no single mortgage type is universally better. Understanding these factors isn't just about being informed — it's about gaining the insight you need to make a mortgage decision that fits seamlessly into your life and furthers your financial goals.

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Consumers are constantly advised to compare rates and fees whenever shopping for a mortgage lender. While that's very prudent advice, for those considering fixed-rate mortgages, add 'the comparison of loan terms' to your comparison-shopping list. Some lenders offer customized loan terms for fixed-rate loans. For example, you might find that a 22-year loan is a financial sweet spot for you. — Timothy Manni, Mortgage and Real Estate Consultant

Frequently Asked Questions

We gathered the questions most aspiring homeowners ask to provide more information about fixed-rate vs. variable-rate mortgages. These may provide additional insights to help you decide on the ideal loan structure.

What is the difference between a fixed-rate and variable-rate loan?
Which loan is better: fixed or variable?
Why are fixed mortgage rates higher than variable-rate ones?
Can I switch from a fixed-rate to a variable-rate mortgage or vice versa?
How often do variable interest rates change, and what factors influence those changes?
How do I determine my risk tolerance to decide between a fixed- or variable-rate mortgage?
What are the potential risks of choosing a variable-rate mortgage during periods of economic uncertainty?
Do fixed-rate mortgages offer any flexibility or options for early repayment without penalties?
Can I lock in a lower fixed rate if interest rates decrease after taking out a variable-rate mortgage?

About Christopher Boston

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Christopher (Croix) Boston was the Head of Loans content at MoneyGeek, with over five years of experience researching higher education, mortgage and personal loans.

Boston has a bachelor's degree from the Seattle Pacific University. They pride themselves in using their skills and experience to create quality content that helps people save and spend efficiently.