When it comes to buying or refinancing an existing mortgage, no two situations are exactly the same. That’s why there are various types of mortgages and term lengths available. If you’re starting to compare your options for borrowing, you might be making a list of pros and cons between a 10/1 ARM and a 30-year fixed mortgage. Both of these mortgages can fit under the conventional loan category, but they have some key differences.

Difference between a 10/1 or 10/6 ARM and 30-year fixed-rate mortgage

For the first 10 years, the interest rate on a 10/6 or 10/1 ARM stays the same every month, just like a fixed-rate mortgage. But with a 10/1 ARM, after a decade, the interest rate adjusts, and does so every year.

So, let’s say you close your loan on September 30, 2023. On September 30, 2033, your interest rate will change – moving either up or down based on movement in the index the rate is tied to.

The rate will adjust again each year until you pay off the loan, sell the home or refinance the mortgage. Each time the rate changes, your monthly payment amount changes to reflect the difference in interest. 10/6 ARMs work similarly, only they adjust every six months instead of yearly.

ARM rates tend to look more attractive because they are usually lower than those attached to 30-year fixed-rate mortgages. However, fixed-rate mortgages come with a rate that never changes. By locking in your rate, your monthly payment stays the same. That means less uncertainty about your loan cost over time and an easier time budgeting. The most popular terms are 15 years and 30 years, with the 30-year fixed-rate mortgage being the most common.

10/1 ARM vs. 10-year fixed mortgage

Don’t confuse a 10/1 ARM with a 10-year fixed-rate mortgage. A 10/1 ARM is a 30-year mortgage with a 10-year low introductory rate period. On the other hand, a 10-year fixed-rate mortgage is a fixed-rate loan with a term of only 10 years.

That means your monthly payment will be much larger with the 10-year fixed-rate mortgage than with the 10/1 ARM because you’re paying off the loan in 10 years instead of 30. While your payment will be larger, the upside is you’ll pay off your mortgage much faster, and you’ll pay less total interest.

Example of a 10/1 ARM vs. 30-year mortgage

Let’s compare a 10/1 ARM with a 30-year fixed-rate mortgage. For this example, we’ll use a loan of $350,000 with a rate of 6.49 percent for the ARM and 6.99 percent for the 30-year fixed. Here’s a glimpse at how the first 10 years would look:

10/1 ARM 30-year fixed-rate mortgage
APR 6.49% 6.99%
Monthly payment $2,209.94 $2,326.21
Remaining principal after 10 years $296,641.39 $300,272.48

Over the first 10 years, the 10/1 ARM is a clear winner: You save more than $100 per month to free up additional room in your budget, and you make a bigger dent in the principal balance.

Once the introductory period is over, though, you could be in for a potentially rocky road. Let’s say that your ARM has a lifetime cap of 11.49 percent (a total maximum increase of 5 percent). If the benchmark rate has risen to your cap (or higher), your payment would be $3,135.15. Whereas, those who locked in a fixed rate would maintain the same payment of $2,326.21.

Use our ARM or fixed-rate calculator to make comparisons using your own information.

What to consider

If you’re comparing a 10/1 ARM vs. a 30-year fixed-rate mortgage, think about the following questions to help shape your decision.

  • How much are you saving? The big reason to consider a 10/1 ARM is the potential for a lower minimum monthly payment. So, do the math to determine whether the savings now is worth the potential uncertainty in the future.
  • What is your plan for the extra money you might save with an ARM? Saving money only matters if you know what you’re going to do with it. Will you make additional payments to the principal to accumulate equity faster? Or can you use the money to pay off debt or put it toward your retirement?
  • How long are you planning to be in the home? If this home is a starter home, a 10/1 ARM can be a wise choice. By selling the property in the first 10 years, you’ll never even have to worry about what an interest rate adjustment means for your budget.
  • Can you afford the worst-case scenario? Even if you have plans to sell the home before the 10-year marker arrives, your plans might change. What will you do if you can’t sell the home or you’re unable to score a lower refinance rate? While it’s impossible to predict the future, you should be prepared to be able to pay a higher rate.

Is a 10/1 or 10/6 ARM worth it?

Choosing between an ARM or a fixed-rate mortgage involves considering your finances and plans for the property. If you can get a lower interest rate and plan to refinance or sell within a decade, a 10/1 or 10/6 ARM can be a smart move. However, if you plan to own the property long term, a fixed-rate mortgage may make more sense.