10/1 or 10/6 ARM vs. 30-year fixed-rate mortgage

Various types of mortgages are available to meet different home financing needs. Adjustable-rate mortgages, including the 10/1 ARM and the 10/6 ARM, are common options in addition to the traditional 30-year fixed-rate mortgage. ARMs and fixed-rate mortgage interest rates are directly tied to the economy, but there are key differences.

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

Both types of ARMs (the 10/1 and the 10/6) and the 30-year fixed mortgage are loans with 30-year terms, but their interest rate structures are different. Here’s an overview of how the three compare:

The key difference between these loans lies in how often their interest rates change. In a 30-year fixed-rate mortgage, the interest rate is set at the beginning of the loan term and never changes.

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 after that decade ends, it becomes a variable rate and continues to be so until the end of the mortgage term. With a 10/1 ARM, the interest rate adjusts every year. With a 10/6 ARM, the interest rate adjusts every six months.

So, let’s say you close your loan on December 30, 2025. On December 30, 2035, 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 annually or biannually 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. Generally, there are caps on how much the interest rate can change within the designated period and over the lifetime of the loan.

Learn more: Fixed vs. adjustable-rate mortgages (ARM): What’s the difference?

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

Let’s compare the costs of 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:

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, you could be on a rocky road. Let’s say your ARM has a lifetime cap of 11.49 percent (a maximum increase of 5 percent). If the benchmark rate has risen to your cap (or higher), your payment would be $3,135.15. In contrast, those with a fixed rate would maintain the same payment of $2,326.21.

Example of a 10/6 ARM vs. 30-year fixed mortgage

Now, let’s look at the costs of a 10/6 ARM versus a 30-year fixed-rate mortgage, using the same numbers from the last example. Here’s how the loans compare during the first 10 years:

Just like in the previous example, if you choose the 10/6 ARM over the 30-year fixed mortgage, you’d spend less on mortgage payments in the first 10 years. After that, the rate on a 10/6 ARM will adjust every six months — and if it increases, so will your payment.

For example, let’s say your rate goes up to 8 percent after a few years. In that case, your payment would increase to $2,568.18 — and if your rate continues rising, you’ll pay even more. But with a 30-year fixed-rate mortgage, the monthly payment will always be $2,326.21.

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What to consider with a 10/1 ARM vs. 30-year fixed

If you’re comparing a 10/1 ARM vs. a 30-year fixed-rate mortgage, consider the following questions:

• 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 are worth the potential uncertainty in the future.
• What is your plan for the extra money you might save with an ARM? Make a plan for how you’ll make the most of your savings. 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 a good idea?

ARM rates 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 always stays the same. By locking in your rate, your monthly payment stays the same. That means less uncertainty about your loan cost over time and easier budgeting.

Choosing between an ARM or a fixed-rate mortgage involves considering your finances and plans for the property. Here’s how to decide which option is best for you:

• 10/1 or 10/6 ARM: 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.
• 30-year fixed-rate mortgage: However, if you plan to own the property long term, a fixed-rate mortgage may make more sense.

Learn more: Refinancing your ARM into a fixed-rate mortgage

Bottom line

No matter if you choose a 10/1 ARM, 10/6 ARM or 30-year fixed-rate mortgage, you’ll secure a fixed interest rate for at least the first 10 years. Afterward, the rate on an ARM will adjust at regular intervals — either once a year (for a 10/1 ARM) or twice per year (for a 10/6 ARM). On the other hand, there aren’t any rate adjustments on a 30-year fixed-rate mortgage, which includes the same rate for the entire term.

10/1 or 10/6 ARM vs. 30-year fixed-rate mortgage FAQs

• Which option is better if I plan to stay in my home for a long time?

• Which option generally has a lower initial interest rate, a 10/1 ARM or a 30-year fixed-rate mortgage?

• What happens if I plan to sell or refinance before the initial fixed-rate period ends on a 10/1 ARM?

Additional reporting by Kevin Channing