Fixed vs Adjustable Rate Mortgage: How to Model the True Cost Over Time

A fixed-rate mortgage locks your interest rate for the entire loan term, keeping your monthly principal and interest payment constant. An adjustable-rate mortgage (ARM) starts with a lower rate for an initial period (typically 5, 7, or 10 years), then adjusts periodically based on the SOFR index plus a lender margin. In Q1 2026, the average 30-year fixed rate is 6.80% while 5/1 ARMs average 5.75% — a spread of 1.05 percentage points that translates to roughly $274/month in savings on a $400,000 loan during the ARM's initial period.

But which one actually costs less? That depends entirely on how long you hold the loan. For holding periods under 7 years, the ARM wins in virtually every rate scenario. For holding periods over 12 years, the fixed rate wins if rates rise even moderately. The 7-12 year range is the gray zone where your rate assumptions determine the outcome.

That framing — certainty vs. savings — is how most people think about this decision. It's also incomplete. The real question isn't which rate is lower today. It's: what is the total cost of each option over the time period you'll actually hold this loan?

That requires modeling. Not guessing, not gut feelings about "where rates are headed" — actual math that accounts for cap structures, adjustment schedules, holding periods, and opportunity cost. Here's how the engineering works, and what the numbers actually say in 2026.

Key Takeaways

• ARM savings are front-loaded: A 5/1 ARM at 5.75% saves approximately $16,440 over the first 5 years compared to a 30-year fixed at 6.80% on a $400,000 loan.
• Holding period is the deciding variable: Under 7 years strongly favors the ARM; over 12 years favors fixed in any rising-rate environment.
• Cap structures bound your worst case: A typical 2/2/5 cap on a 5.75% ARM means your rate can never exceed 10.75%, regardless of market conditions.
• The 7/6 ARM is now dominant: Most lenders have shifted to the 7/6 ARM structure (7-year fixed, 6-month adjustments), offering a longer initial period than the traditional 5/1 ARM.
• Payment shock is manageable with planning: Start refinance evaluation 6-12 months before your ARM resets to avoid DTI complications.
• Opportunity cost tips the math further toward ARMs for short holds: Investing the $274/month savings at 7% produces a $19,520 portfolio after 5 years, extending the break-even by 2-4 additional years.

Fixed vs. Adjustable Rate Mortgage: Quick Comparison

Quotable stat: According to the Mortgage Bankers Association, adjustable-rate mortgages account for approximately 9-10% of all mortgage applications as of early 2026 — the highest share since 2022 — driven by the widening spread between fixed and ARM rates that now exceeds 1 percentage point on average.

How Each Mortgage Type Works Mechanically

Fixed-Rate Mechanics

A fixed-rate mortgage is the simpler instrument. You borrow a principal amount at an interest rate that never changes. Your monthly payment of principal and interest is calculated once at origination and stays constant for the full term — 15 or 30 years.

The payment is computed using the standard amortization formula:

Monthly Payment = P × [r(1+r)^n] / [(1+r)^n - 1]

Where:
  P = principal balance
  r = monthly interest rate (annual rate / 12)
  n = total number of payments

For a $400,000 loan at 6.80% over 30 years:

r = 0.068 / 12 = 0.005667
n = 360

Payment = 400,000 × [0.005667 × (1.005667)^360] / [(1.005667)^360 - 1]
Payment = $2,608/month

Total interest paid over 30 years: $538,880. The rate never changes. The payment never changes. The amortization schedule is fully deterministic from day one.

ARM Mechanics: More Moving Parts

An adjustable-rate mortgage has two phases: a fixed initial period and an adjustment period. The naming convention tells you exactly how these phases work:

• 5/1 ARM: Fixed for 5 years, adjusts once per year after that
• 7/6 ARM: Fixed for 7 years, adjusts every 6 months after that
• 10/1 ARM: Fixed for 10 years, adjusts annually after that

The 7/6 ARM has become the dominant product in 2026, largely replacing the traditional 5/1 ARM at many lenders. The 7-year initial period gives borrowers more runway before adjustments begin, while the 6-month adjustment frequency means the rate tracks market conditions more closely — which can work in your favor if rates are declining.

Quotable stat: In mid-March 2026, borrowers using a 7/6 ARM took on an average rate of 5.51% compared with 6.19% for a standard 30-year fixed — a spread of 68 basis points representing the largest gap since June 2022. That translates to average monthly payments of $2,578 for ARM borrowers versus $2,727 for fixed-rate borrowers, a 5.8% monthly discount.

During the initial period, the payment calculation is identical to a fixed-rate loan. The complexity begins at the first adjustment date.

For the same $400,000 loan on a 5/1 ARM at 5.75%:

r = 0.0575 / 12 = 0.004792
n = 360

Initial Payment = 400,000 × [0.004792 × (1.004792)^360] / [(1.004792)^360 - 1]
Initial Payment = $2,334/month

That's $274 less per month than the fixed-rate option — $16,440 in savings over the first 5 years, before the first adjustment even happens.

ARM Anatomy: Index + Margin + Caps

Understanding ARM pricing requires knowing three components: the index, the margin, and the cap structure. These are the mechanical parts that determine what your rate becomes after the initial period.

The Index: Your Rate's Moving Foundation

The index is a benchmark interest rate that fluctuates with market conditions. As of 2026, virtually all new ARMs use the Secured Overnight Financing Rate (SOFR), which replaced LIBOR after its phase-out in June 2023.

Quotable stat: The 30-day average SOFR as of Q1 2026 stands at approximately 4.30%, reflecting the Federal Reserve's current target range. SOFR is based on actual overnight Treasury repurchase agreement transactions — roughly $2 trillion in daily volume — making it significantly harder to manipulate than the survey-based LIBOR it replaced.

Your ARM's index determines the variable component of your rate. When SOFR rises, your adjusted rate rises. When it falls, your rate can fall too — subject to cap and floor constraints.

The Margin: Your Rate's Fixed Markup

The margin is the lender's permanent markup above the index. It's set at origination and never changes. Typical ARM margins in 2026 range from 2.50% to 2.75%.

Your fully indexed rate at any adjustment point equals:

Fully Indexed Rate = Current Index Value + Margin

Example: 4.30% (SOFR) + 2.75% (margin) = 7.05%

This means if you took a 5/1 ARM at 5.75% today and SOFR stays exactly where it is, your rate would increase to 7.05% at the first adjustment — a 1.30 percentage point jump. This is a critical insight many borrowers miss: the initial ARM rate is a discounted teaser below the fully indexed rate.

Your lender's risk-based pricing model determines your specific margin. Borrowers with higher credit scores and lower loan-to-value ratios typically receive margins at the lower end of the range.

The Cap Structure: Your Rate's Guardrails

ARM caps limit how much your rate can change. They're expressed as three numbers — for example, 2/2/5 — representing three distinct constraints:

Some ARMs use a 5/2/5 structure (higher initial cap) or a 2/1/5 structure (lower periodic cap). The cap structure dramatically affects your worst-case scenario and must be factored into any honest cost comparison.

Key insight: A 5/1 ARM with a 2/2/5 cap structure starting at 5.75% can never exceed 10.75%, regardless of what SOFR does. But it can reach that ceiling in as few as 4 adjustment periods (years 6-9) if rates rise aggressively. The caps slow the climb but don't prevent it.

There's also typically a floor — the minimum rate, usually equal to the margin (2.75%). Your rate won't drop below this floor even if SOFR hits zero.

Total Cost Modeling: Fixed vs. ARM at Different Hold Periods

This is where the decision actually gets made. The comparison isn't "which rate is lower" — it's "which loan costs less over my specific holding period, given realistic rate scenarios."

We'll model three rate scenarios for a $400,000 loan comparing a 30-year fixed at 6.80% versus a 5/1 ARM at 5.75% (2/2/5 caps, 2.75% margin):

• Scenario A — Rates flat: SOFR stays at ~4.30%, ARM adjusts to fully indexed rate (7.05%) and stays
• Scenario B — Rates rise moderately: SOFR increases 1.5% over 5 years, then stabilizes
• Scenario C — Rates rise aggressively: SOFR increases 3% over 5 years (ARM hits caps)

Total Interest Paid Comparison

The pattern is clear:

• At 5 years: The ARM wins in every scenario — you sell or refinance before any adjustment. You pocket ~$19,500 in savings.
• At 7 years: The ARM still wins in all three scenarios, but the margin narrows significantly in aggressive-rate environments.
• At 10 years: The ARM wins only if rates stay flat. Under moderate rate increases, it's roughly break-even. Under aggressive increases, the fixed rate costs $12,500 less.
• At 15+ years: The fixed rate wins in any rising-rate environment. Only a sustained flat or declining rate environment keeps the ARM ahead.

Quotable stat: According to the National Association of Realtors, the median homeownership tenure in 2025 was 10.4 years — up from 6.2 years in 2010. For borrowers who match the current median tenure, the fixed-vs-ARM decision is essentially a coin flip under moderate rate assumptions, making holding period the single most important variable in the calculation.

Break-Even Analysis: Finding the Crossover Point

The break-even point is the holding period at which the ARM's total cost equals the fixed rate's total cost. Beyond this point, you're paying more with the ARM than you would have with the fixed rate.

How to Calculate Your Break-Even

The break-even calculation works in three steps:

Step 1: Calculate the cumulative savings during the ARM's fixed period.

Annual savings = (Fixed payment - ARM payment) × 12
= ($2,608 - $2,334) × 12
= $3,288/year × 5 years = $16,440 saved

Step 2: Calculate the annual cost increase after adjustment.

If ARM adjusts to 7.05% (flat scenario):
New ARM payment on remaining balance (~$365,800) = $2,534
Annual extra cost vs. fixed = ($2,534 - $2,608) × 12 = -$888
Wait — the ARM is still cheaper at 7.05%. Break-even is further out.

If ARM adjusts to 7.75% (initial cap hit):
New ARM payment on remaining balance = $2,718
Annual extra cost vs. fixed = ($2,718 - $2,608) × 12 = $1,320/year

Step 3: Divide cumulative savings by annual overage.

Break-even (after initial cap hit) = $16,440 / $1,320 = 12.5 years after adjustment
Total break-even = 5 + 12.5 = 17.5 years from origination

Break-Even Points by Rate Scenario

The takeaway: your break-even depends almost entirely on how fast rates rise after your initial period ends. In the most pessimistic case (rates rise 3%+), the ARM still takes 8-9 years to become more expensive than a fixed rate — meaning you'd need to hold the loan for nearly a decade after your initial period before the fixed rate pays off.

Payment Shock: The ARM Risk Nobody Models Until It Hits

Definition: Payment shock is the sudden, significant increase in a borrower's monthly mortgage payment that occurs when an adjustable-rate mortgage exits its initial fixed-rate period and resets to a higher interest rate based on current market conditions. Payment shock can increase monthly payments by 8-37% depending on how far rates have moved during the initial period.

Payment shock isn't a technical term from your loan documents — it's an industry term describing the psychological and financial impact of a significant payment jump. And it creates a compounding problem that catches many borrowers off guard.

Here's what payment shock looks like in practice on a $400,000 loan:

A 37.5% payment increase isn't abstract — it's the difference between a comfortable housing payment and one that strains your entire budget. Payment shock also creates a secondary problem: your higher monthly payment increases your debt-to-income (DTI) ratio, which can make it harder to qualify for a refinance precisely when you need one most.

How to Mitigate Payment Shock

• Build a rate-adjustment reserve. During the initial fixed period, set aside the difference between what you're paying and what the worst-case adjusted payment would be. If your ARM payment is $2,334 and the worst-case first adjustment is $2,718, save $384/month. After 5 years, you'll have a $23,040 buffer.
• Start your refinance evaluation 6-12 months before the first reset. Don't wait until the adjustment hits. Refinancing takes 30-60 days, and rate-lock periods are typically 45-60 days. Beginning the process early gives you time to shop lenders, lock a rate, and close before your payment changes.
• Make extra principal payments during the fixed period. A lower remaining balance at adjustment means a smaller absolute payment increase, even at a higher rate.
• Monitor SOFR trends quarterly. If SOFR is climbing toward levels that would push your adjusted rate to the cap, that's your signal to accelerate the refinance timeline.

Convertible ARMs: The Built-In Escape Hatch

Definition: A convertible ARM is an adjustable-rate mortgage that includes a contractual option allowing the borrower to convert to a fixed interest rate during a specified window — typically between the first and fifth adjustment periods — without refinancing, reapplying, or paying standard closing costs.

The conversion is built into your original loan agreement. No new application, no closing costs, no appraisal.

The mechanics are straightforward: during a specified conversion window (typically between the first and fifth adjustment periods), you notify your lender that you want to lock your current adjusted rate as a permanent fixed rate. The lender converts the loan, usually for a nominal fee of $250-$500.

When Convertible ARMs Make Sense

• You want ARM savings but worry about long-term risk. The conversion option lets you capture the initial rate discount while maintaining an exit path that doesn't require qualifying for a new loan.
• Your credit situation might not support a future refinance. If your income is variable, your credit score could fluctuate, or you're concerned about future DTI ratios, the conversion option sidesteps the need to re-qualify entirely.
• Rates decline and you want to lock in. If SOFR drops and your ARM adjusts downward, you can convert at the lower adjusted rate — effectively locking in a rate below what was available when you originated.

The trade-off: convertible ARMs typically carry a slightly higher initial rate (0.125-0.25% above non-convertible ARMs) or a higher margin. You're paying an insurance premium for optionality. Whether that premium is worth it depends on how likely you think you'll use the conversion option — the same expected-value calculation you'd run on any insurance product.

The 2026 Rate Environment: What the Data Says

Context matters. The math changes depending on where we are in the rate cycle.

Current Rates (Q1 2026)

Quotable stat: The average spread between 30-year fixed rates and 5/1 ARM rates in Q1 2026 is approximately 1.05 percentage points — wider than the historical average of 0.60-0.80 percentage points. A wider spread means the ARM's initial savings are more substantial than usual, making ARMs relatively more attractive for short-to-medium holding periods compared to historical norms.

What the Yield Curve Tells Us

As of early 2026, the yield curve has normalized after its prolonged 2022-2024 inversion. The Federal Reserve has signaled a cautious approach to further rate cuts after its 2024-2025 easing cycle. Key signals:

• Fed funds rate: 4.25-4.50% target range
• 10-year Treasury: ~4.40%, suggesting markets expect rates to remain elevated
• SOFR forward curve: Markets price SOFR declining modestly to ~3.80-4.00% over the next 3-5 years

If forward markets are correct, a 5/1 ARM borrower in 2026 would see their rate adjust to approximately 6.55-6.75% (3.80-4.00% SOFR + 2.75% margin) at the first reset — still below today's 30-year fixed rate of 6.80%. Under this scenario, the ARM is the clear winner for any holding period.

But forward curves are predictions, not guarantees. An unexpected inflation spike, geopolitical disruption, or fiscal policy shift could push SOFR well above current levels.

When Fixed Wins vs. When ARM Wins

The decision framework isn't just about rates — it's about matching the mortgage product to your specific circumstances. Here's the engineering analysis:

Choose Fixed Rate When:

• Holding period is 10+ years and you value certainty. The longer you hold, the more rate volatility exposure you accumulate with an ARM. If your plan is to stay in this home for 15-30 years with no intention to refinance, the fixed rate eliminates a variable from your financial model.
• Your budget has no margin for payment increases. If a $300-500/month payment increase (plausible in an ARM worst case) would cause financial stress, the fixed rate is the safer underwriting decision for your personal finances.
• Rates are historically low. When fixed rates are near historical floors, you're locking in a generational price. The ARM discount shrinks because the starting spread narrows, and there's more room for rates to rise than fall.
• You're buying at the top of your budget. Maximum-leverage borrowers have less cushion. A fixed rate keeps your largest monthly expense predictable.

Choose ARM When:

• Holding period is under 7 years. If you're confident you'll sell, relocate, or refinance within the ARM's initial period, you capture 100% of the rate discount with zero adjustment risk. The savings are real and guaranteed.
• The initial spread is wide (1%+ below fixed). In 2026, the 1.05% spread between fixed and 5/1 ARM means $274/month in savings on a $400,000 loan. That's $16,440 over 5 years — real money that either stays in your pocket or goes into investments.
• You can handle payment variability. If your income exceeds your expenses by a comfortable margin, the potential for payment increases after the initial period isn't a financial threat — it's a manageable variable.
• Rates are historically elevated and likely to decline. If you're originating in a high-rate environment (arguably where we are in 2026), an ARM gives you a lower starting rate plus the possibility that future adjustments go down as rates normalize — effectively getting a rate reduction without refinancing.
• You plan to make extra principal payments. The lower initial ARM rate means more of each payment goes to principal during the fixed period. If you're making additional payments, your remaining balance at first adjustment will be lower, reducing the impact of rate increases.

The Hybrid Strategy: ARM + Planned Refinance

A common approach is to take a 7/1 or 10/1 ARM with the explicit plan to refinance before the first adjustment. This strategy works when:

• You're confident your credit profile will qualify for refinancing (check your underwriting readiness)
• You're building equity (the property isn't likely to lose significant value)
• You've modeled the refinancing costs and they don't erase your ARM savings
• You understand the difference between rate-and-term vs. cash-out refinancing and which serves your exit strategy

Refinancing typically costs 2-5% of the loan amount ($8,000-$20,000 on a $400,000 loan). Your ARM savings must exceed this cost for the strategy to pay off. On a 7/1 ARM saving $200/month, that's $16,800 over 7 years — enough to cover refinancing costs with room to spare in most scenarios.

Critical timing detail: begin your refinance process 6-12 months before the ARM's first adjustment date. Waiting until the rate resets creates urgency that limits your negotiating power, and the higher post-adjustment payment can increase your debt-to-income ratio enough to reduce the refinance terms you qualify for — or disqualify you entirely. If your DTI exceeds conventional limits after the payment jump, you may need to consider refinancing options for tighter credit profiles.

The Opportunity Cost Factor Most Calculators Ignore

Standard mortgage comparisons treat every dollar saved as equal. But a dollar saved in year 1 is worth more than a dollar saved in year 15, because early savings can be invested.

If you invest the $274/month ARM savings at a conservative 7% annual return:

This investment return extends the break-even point further in the ARM's favor. Even if the ARM rate adjusts upward and you start paying more than the fixed rate after year 5, the investment portfolio built from early savings continues compounding — a factor that purely interest-based comparisons miss entirely.

Key insight: The true break-even analysis should compare total cost including opportunity cost of savings invested, not just interest paid. When opportunity cost is factored in, the ARM's break-even extends by 2-4 additional years in most rate scenarios, because the front-loaded savings have the longest compounding runway.

Common Mistakes in Fixed vs. ARM Analysis

Mistake 1: Comparing only monthly payments. Monthly payment differences ignore principal paydown differences. In the early years, a lower ARM rate means more of your payment goes to principal — you build equity faster. This matters if you sell before 30 years.

Mistake 2: Assuming the worst case for ARMs. "What if rates go to 10%?" is a valid concern, but your caps exist precisely for this scenario. Model the actual worst case (starting rate + lifetime cap), not an uncapped fantasy. A 5.75% ARM with a 5% lifetime cap maxes out at 10.75% — painful, but bounded.

Mistake 3: Ignoring the APR vs. rate distinction. The APR on your ARM quote includes only the initial rate period costs. It doesn't model future adjustments. Compare initial APRs for the fixed period only, then model post-adjustment scenarios separately.

Mistake 4: Not accounting for the refinance option. An ARM doesn't commit you to 30 years of rate uncertainty. You can refinance to a fixed rate at any point — the ARM is a bet on near-term rates with an exit option. The fixed rate is a bet on long-term rates with no flexibility premium.

Mistake 5: Treating the decision as permanent. According to Federal Housing Finance Agency data, the average mortgage is held for approximately 7-8 years before being refinanced or paid off through a home sale. Optimizing for the 30-year scenario is optimizing for an outcome that statistically doesn't happen for most borrowers.

Your Decision Checklist

Run through these five questions to determine which mortgage type fits your situation:

1. How long will you hold this loan? Under 7 years favors ARM. Over 12 years favors fixed. Between 7-12 is the gray zone where rate assumptions matter most.
2. What's the current fixed-ARM spread? If the spread is over 0.75%, the ARM's initial savings are substantial. Under 0.50%, the fixed rate's certainty premium is cheap.
3. Can your budget absorb a $300-500/month increase? If yes, the ARM's risk is manageable. If no, the fixed rate is the responsible choice.
4. Where are we in the rate cycle? Late in a hiking cycle (rates elevated) favors ARMs — future adjustments may decrease. Early in a hiking cycle favors fixed — lock before rates climb further.
5. Will you invest the savings or spend them? If you'll invest the monthly ARM savings, the opportunity cost advantage extends the ARM's break-even by 2-4 years. If you'll just spend the difference, the raw interest comparison applies.

The fixed-vs-ARM decision is fundamentally a question of holding period and rate trajectory. Model your specific numbers using the frameworks above, stress-test against the worst-case ARM scenario, and choose based on total cost over your timeline — not a generic 30-year comparison that may never apply to your actual life.

For more on how lenders evaluate your mortgage application and determine which rates you qualify for, see our guide to how mortgage underwriting works. If you're a first-time buyer still comparing loan programs, start with our first-time homebuyer loans guide. To understand how buying mortgage points can further reduce your rate — on either a fixed or ARM loan — read our points breakdown. And for the full picture on how lenders set rates based on your profile, read risk-based pricing explained.

Frequently Asked Questions

What is the difference between a fixed-rate and adjustable-rate mortgage?

A fixed-rate mortgage locks your interest rate for the entire loan term — your monthly principal and interest payment never changes. An adjustable-rate mortgage (ARM) starts with a lower fixed rate for an initial period (typically 5, 7, or 10 years), then adjusts periodically based on a benchmark index plus a margin. The key trade-off: fixed rates offer payment certainty at a premium, while ARMs offer lower initial costs with future rate uncertainty.

How much can an adjustable-rate mortgage increase?

ARM rate increases are governed by cap structures, typically expressed as three numbers (e.g., 2/2/5). The first cap limits the initial adjustment (commonly 2%), the second caps each subsequent adjustment (commonly 2%), and the third is the lifetime cap above your starting rate (commonly 5-6%). On a 5/1 ARM starting at 5.75%, a 2/2/5 cap structure means your rate could reach a maximum of 10.75% over the loan's life, but can never jump more than 2% in any single adjustment period.

When does a fixed-rate mortgage cost less than an ARM?

A fixed-rate mortgage typically costs less than an ARM when you hold the property for more than 8-12 years and rates rise moderately (1-2% above your ARM's starting rate). The exact break-even point depends on the ARM's initial discount, cap structure, and how quickly rates increase. In a rising rate environment, if rates climb 150+ basis points, a 5/1 ARM borrower who stays past year 8 will generally pay more in total interest than someone who took a fixed rate.

Is an ARM a good idea in 2026?

In Q1 2026, ARMs can be a strong choice for borrowers who plan to sell or refinance within 5-7 years. With 30-year fixed rates near 6.8% and 5/1 ARMs around 5.75%, the initial savings of roughly $250/month on a $400,000 loan are significant. However, if you plan to stay long-term and rates remain elevated or rise further, a fixed rate provides certainty. The decision hinges on your holding period, risk tolerance, and whether the 0.75-1.25% initial rate discount is enough to offset potential future increases.

What index do most ARMs use in 2026?

Most ARMs originated in 2026 use the Secured Overnight Financing Rate (SOFR) as their benchmark index, specifically the 30-day average SOFR. SOFR replaced LIBOR after its phase-out in June 2023. Your ARM rate equals the SOFR index value plus a fixed margin (typically 2.50-2.75%). The 30-day average SOFR as of early 2026 is approximately 4.30%, so a typical ARM with a 2.75% margin would adjust to around 7.05% at first reset — before cap limitations apply.

What is payment shock on a mortgage?

Payment shock is the sudden increase in your monthly mortgage payment when an ARM exits its initial fixed-rate period and adjusts to a higher rate. On a $400,000 loan, payment shock can range from $200/month (if rates stayed flat) to $876/month (if the rate hits caps after two adjustment periods). Payment shock also raises your debt-to-income ratio, which can make it harder to qualify for refinancing at exactly the time you might want to escape the ARM. To mitigate it, start evaluating refinance options 6-12 months before your first adjustment date.

What is a convertible ARM?

A convertible ARM includes a built-in option to convert your adjustable rate to a fixed rate without going through a full refinance — no new application, no closing costs, and no appraisal. During a specified conversion window (typically between the first and fifth adjustment periods), you can lock your current adjusted rate as a permanent fixed rate for a nominal fee of $250-$500. The trade-off is a slightly higher initial rate or margin (0.125-0.25%) compared to a standard ARM.

What is a 7/6 ARM and how does it differ from a 5/1 ARM?

A 7/6 ARM has a fixed rate for 7 years and then adjusts every 6 months, while a 5/1 ARM is fixed for 5 years and adjusts annually. The 7/6 ARM has become the dominant ARM product in 2026 because it offers a longer initial fixed period (7 years vs. 5) and more frequent adjustments that track market conditions more closely — which benefits borrowers if rates decline. As of March 2026, the average 7/6 ARM rate is approximately 5.51% compared to 6.19% for a 30-year fixed, a 68 basis point spread.