Published March 5, 2026. Figures reflect conditions at publication. See current market data.
The Basic Trade-Off
A fixed-rate mortgage locks your interest rate for the full loan term — 15, 20, or 30 years. An adjustable-rate mortgage (ARM) offers a lower initial rate for a set period (typically 5, 7, or 10 years), then adjusts annually based on a benchmark index plus a margin.
In March 2026, a 30-year fixed averages 6.87% nationally, while a 5/1 ARM averages approximately 5.95% — a 92-basis-point difference that translates to about $200/month on a $400,000 loan.
Understanding ARM Caps
Most modern ARMs come with three caps: the initial adjustment cap (how much the rate can change at first reset, typically 2%), the periodic adjustment cap (how much it can change each year after, typically 2%), and the lifetime cap (maximum change over the life of the loan, typically 5%).
On a 5/1 ARM starting at 5.95%, the worst-case rate at first adjustment is 7.95%. After that it can go to 9.95% — and cap out at 10.95%. That's meaningful risk if rates don't cooperate.
Who Should Consider an ARM in 2026?
ARMs make the most sense if: you're highly confident you'll sell or refinance before the fixed period ends, your income is rising strongly and you can absorb higher payments, or you're buying a short-term investment property. If you're buying a primary residence you plan to hold for 10+ years, a fixed rate offers certainty that's hard to price.
