Dated: Feb 1, 2026

This topic comes up frequently and obviously everyone who takes out a mortgage needs to decide this aspect. I want to share a more mathematical perspective and some observations which people often don't take into account.

1) The beginning of the loan matters more than the end.

Your outstanding principal is highest at the start, which means the interest rate you pay early on applies to the largest balance. A small rate difference in the first few years can have a bigger impact than a similar difference much later, when the balance is smaller.

2) Early savings are more valuable (time value of money).

Savings at the beginning of the loan are worth more because money saved today can earn a return over time.

3) You can use early savings to pay down principal and reduce future interest.

One practical move is to use the ARM’s lower payment during the intro period to prepay principal. That immediately reduces what you owe, which lowers future interest costs even further. It also reduces your exposure if the ARM rate rises later, since a higher rate would apply to a smaller remaining balance.

4) Refinancing/Selling early/Prepaying the mortgage can change the picture.

Ofcourse, if interest rates come down at some point—often during a recession—you may be able to refinance into a better loan and reset the ARM intro period. In addition, a majority of the people will hold the mortgage for less than 10 years.

None of this is to say an ARM is always better. A 30-year fixed provides real peace of mind and protects you from future rate increases. The point is simply: make an informed decision using the math that actually tells you which option will be cheaper for you.

A concrete data point (from my spreadsheet):

With an ARM at 5.5%, a 30-year fixed at 6.5%, a 7-year intro period, and a 15-year holding period, the ARM doesn’t become worse than the fixed unless the post-intro ARM rate rises higher than 8.21% (that is the break-even rate).

Here is the sheet. Enter your data into the yellow fields see the results!

https://docs.google.com/spreadsheets/d/1VwOEy-RFMQaRfnwdup9DXkSQSLGkdmhK6yp883ROVG4/edit?usp=sharing