Fixed vs Adjustable, and What I Won't Predict
We went through what an underwriter looks at in your file. Now the loan itself — the choice between a fixed rate and an adjustable rate. I want this one on the table early, because it's the kind of decision people make on a feeling instead of a number.
The basic shape. A fixed-rate mortgage locks your interest rate for the life of the loan. Thirty years, the rate you signed is the rate you pay, whether the market moves up two points or down two. An adjustable-rate mortgage — an ARM — starts with a lower rate for a fixed period, five years, seven, sometimes ten, then adjusts, usually annually, based on whatever index it's tied to plus a margin. The appeal is right there in the first few years: lower payment, more house for the same money. If you're confident you'll move or refinance before the adjustment period hits, that lower rate can look good on paper.
I'm not going to tell you ARMs are bad. I've seen them work fine for people with a real plan — a young couple who knew they'd be transferred in four years, somebody buying a starter place fully intending to move up before the fixed period ends. What I'll tell you is I've also watched people take an ARM because the payment was lower and the loan officer never spent five minutes explaining what happens in year six. That's the part that gets people. Not the ARM. The not knowing what year six looks like.
So mark this down: before you sign anything with an adjustable rate, ask for the worst-case number. Ask what your payment looks like if the rate adjusts to its cap. Every ARM has a cap — a ceiling on how high it can go — and your loan officer can pull that number in about thirty seconds. If they hesitate, that tells you something too.
Here's my first house, the townhome in Orem, because it's the same root problem in a different hat. I didn't read my loan estimate line by line back then. The loan officer seemed nice, I was in my twenties, and I figured if something were wrong somebody would've said so. Two fees on that closing statement I could have negotiated away if I'd known to ask. I found them later, going back through the paperwork out of pure irritation, and by then the money was long gone. I still keep that closing folder — specifically so I remember what not knowing costs you. It's not about the dollar amount, though that stung. It's that I signed something I hadn't fully understood, which is the same mistake as taking an ARM without asking about the cap. You're signing the unknown part and hoping it works out.
So the opinion, and it's not complicated: for a first-time buyer, I lean fixed almost every time. Not because ARMs are a trick, but because most first-time buyers don't have a firm five-year plan. Life moves the goalposts. The job changes, the baby changes the space you need, the in-laws end up in the basement apartment longer than anyone planned. A fixed rate means the mortgage isn't one more variable to manage on top of all that. You know the payment on day one of the loan and on day one of year twenty-five. In this market, that predictability is worth something real, even if the ARM's opening rate looks tempting on the comparison sheet.
Now the part I actually want you to sit with, because it matters more than the fixed-versus-ARM debate. I am not going to predict where rates are headed. I get asked constantly — should I wait, are rates coming down, is next spring better than now — and I don't know, and anybody who tells you they know is guessing louder than I'm willing to. I don't follow the day-to-day rate market closely enough to call it, and nobody does, not reliably enough to bet a house purchase on it. I've watched people delay a purchase eight months waiting for a rate drop that never came, while the house they wanted went up eleven thousand dollars in that same window. The rate is one variable. The price is another. Waiting on one can cost you on the other, and there's no clean formula for which way it'll break.
What I can tell you to do instead of guessing: buy the house that works for your budget at today's rate, with a plan to refinance if rates drop later. Refinancing is a known process with known costs. Predicting the Fed is not.
Practical steps for this week:
- If a loan officer quotes you an ARM, ask directly for the rate cap and the worst-case payment. Get it in writing.
- Ask for the same loan type — fixed or ARM — from all three lenders you're comparing, so you're comparing like against like.
- Don't decide based on where you think rates are going. Decide based on what the payment does to your budget right now, at the rate in front of you.
Before next time, pull whatever loan estimate or pre-approval paperwork you've got and read it end to end, even the parts that look like boilerplate. It's more interesting than it looks, and it's a lot cheaper to catch something now than in a closing folder ten years from now.