With rates declining, the calculus between adjustable-rate mortgages (ARMs) and fixed-rate loans has shifted. Here's the current math.
Current Rate Comparison
- 30-year fixed: 5.89%
- 5/1 ARM: 5.35% (fixed for 5 years, then adjusts annually)
- 7/1 ARM: 5.55% (fixed for 7 years)
When an ARM Wins
If you plan to sell or refinance within 5-7 years, the ARM saves money. On a $400,000 loan, the 5/1 ARM saves $145/month vs the 30-year fixed — that's $8,700 over 5 years.
When Fixed Wins
If you're staying long-term and rates rise after your ARM's fixed period, you'll pay more. ARM caps typically allow 2% annual increases up to a 5% lifetime cap. Your 5.35% ARM could become 10.35% in a worst case.
The Sweet Spot
In a declining rate environment (which we're in), ARMs are less advantageous because you can refinance a fixed-rate loan to a lower rate later. The 0.54% ARM discount is modest compared to historical spreads of 1-2%.
For most buyers in 2026, the 30-year fixed offers the best risk-adjusted value.
