Fixed Rate vs. Variable Rate Mortgage: Which Should You Choose?

If you're buying a home in today's market, you're likely asking one big question: Should I lock in a fixed rate, or gamble on a variable one? With interest rates shifting and the housing market cooling across cities like Austin, Houston, and Dallas, your mortgage type can have a huge impact on your monthly payment—and your peace of mind.

At LendFriend, we help Texas buyers make smart, confident decisions about their mortgage strategy. Here's what you need to know about fixed vs. variable rates, and how to decide which one fits your homebuying journey.

What Is a Fixed-Rate Mortgage?

A fixed-rate mortgage is just what it sounds like: your interest rate stays the same for the entire term of your loan. That means your monthly principal and interest payments won’t change—no matter what the Federal Reserve does, no matter how the market moves.

This type of mortgage is popular with first-time homebuyers and long-term owners alike. In Texas, where property taxes and insurance premiums can fluctuate more than in other states, having a predictable mortgage payment brings welcome stability.

Fixed-rate mortgages typically come in 15- and 30-year terms (but you can also get a 20 year or even a 40-year mortgage). The 30-year fixed is by far the most popular choice today, especially in a higher-rate environment like 2025. That’s because it spreads the loan over a longer period, keeping monthly payments lower and helping more buyers qualify under debt-to-income guidelines.

Let’s say you’re buying a $450,000 home in Austin with 20% down. If you lock in a 6.875% fixed rate, your monthly principal and interest might be around $2,360. That number won’t change for the next 30 years unless you refinance. You can plan your budget with confidence.

What Is a Variable-Rate Mortgage?

Also known as an adjustable-rate mortgage (ARM), a variable-rate mortgage starts with a lower interest rate than a comparable fixed-rate loan. That rate remains fixed for a set period (often 5, 7, or 10 years), then begins to adjust annually based on the market.

A 5/1 ARM, for example, might offer a starting rate of 5.75% for the first five years. After that, the rate could increase or decrease each year, depending on economic conditions and your loan's specific cap structure.

ARMs fell out of favor after the 2008 financial crisis, when lax underwriting and risky loan structures contributed to widespread foreclosures. But today’s ARMs are a different story. Thanks to federal regulations and tighter lending standards, modern ARMs are designed with borrower protections, including caps on how much your rate can change and stricter income documentation.

In a state like Texas, where buyers are increasingly using short-term financing to relocate, upgrade, or take advantage of employer relocation packages, ARMs are making a quiet comeback. They’re especially attractive to those who don’t expect to stay in their home more than five to seven years. are increasingly using short-term financing to relocate, upgrade, or take advantage of employer relocation packages.

Why ARMs Are Back in a BIG way

After a long period of rate hikes, we’re entering a new market cycle. Inflation is moderating, and many economists expect the Fed to begin cutting rates in late 2025 or early 2026. That means buyers who take a variable rate now might see their mortgage payment decrease over time.

Historically, borrowers who chose variable rates have paid less interest over the life of their loan than those who locked in a fixed rate. But that assumes you can weather short-term increases—and that you’re not betting on rates dropping tomorrow.

At LendFriend, we’ve seen more Texas buyers asking about ARMs again, especially those moving from high-cost coastal cities. Many are using ARMs to get a lower upfront payment while keeping the option to refinance later.

When it makes sense to go Fixed vs. Variable 

Texas homebuyers aren’t just thinking about mortgage rates—they’re thinking about their life plans, their financial cushion, and how long they realistically plan to stay in their new home. That’s why context matters.

If you're buying in Austin or Houston, where home prices have corrected slightly from 2022 highs, you're probably focused more on long-term affordability and payment predictability. These cities also have higher property tax rates and rising insurance premiums, so having a fixed monthly principal and interest payment can simplify budgeting and reduce financial stress. A 30-year fixed-rate mortgage can offer that stability and give you peace of mind in a state known for its fluctuating housing costs.

On the other hand, if you're temporarily relocating for a job in Dallas or buying a starter home you don’t plan to keep for more than 5 to 7 years, a variable-rate mortgage could offer meaningful upfront savings. Lower initial rates on ARMs can help reduce your monthly payment, and if you're planning to refinance before the rate adjusts, the risk can be well-managed.

Today’s most popular variable-rate options in Texas are “hybrid” ARMs—like the 5/1 or 7/1 ARM. These give you a fixed rate for the first 5 or 7 years, then adjust annually. For many buyers, this hybrid model strikes the right balance between affordability now and flexibility later.

Whatever your goal—locking in stability or maximizing savings early on—the Texas market offers space to make a smart, customized decision.

How to Decide Which Is Right for You

The truth is, there’s no one-size-fits-all answer. Choosing between a fixed or variable rate depends on:

• How long you plan to own the home

• Your monthly budget and financial flexibility

• Your appetite for risk

• Your expectations about interest rates

If you’re risk-averse or buying your forever home, a fixed rate will let you sleep better at night. You’ll know exactly what you owe every month, and you’ll never have to worry about rate hikes disrupting your budget. For buyers in markets like Austin or San Antonio, where affordability can swing with property taxes or insura
s stability can be especially comforting.

But if you’re strategic, financially flexible, and watching the Fed closely, a variable rate might reward you with lower payments—at least for now. Buyers who expect rates to fall or plan to move or refinance within a few years can often save significantly in the early years of their mortgage by choosing an ARM.

Our advice? Don’t decide in a vacuum. Every market is different, and every borrower has a unique risk profile. Compare both options side-by-side, and ask a lender to run the numbers using real Texas scenarios—whether you're purchasing a condo in Houston, upgrading in Dallas, or relocating to the Hill Country.

Comparing the Costs (and Savings): Fixed vs. 7/1 ARM Over 7 Years

Sometimes the best way to evaluate your options is to look at the numbers side-by-side. Below is a breakdown of total mortgage payments over the first 7 years for a $625,000 home in Texas with 20% down. Both loans have the same fees and origination costs. One is a 30-year fixed at 6.5%, and the other is a 7/1 ARM at 5.875%.

Here’s a simple side-by-side comparison for a $500,000 home:

As you can see, the 7/1 ARM offers a significantly lower interest rate and thereofre a lower payment—saving you more than $17,000 in the first 7 years! If you know you're going to move or refinance before the adjustment period an ARM is a no-brainer. But if you’re staying put long-term, the fixed rate provides certainty against future increases.

The LendFriend Approach

There is no one-size-fits-all when it comes to mortgages. Fixed rate loans are the best option for every borrower and variable rate mortgages don't always make the most sense (despite the savings). At LendFriend, we work with you to understand your goals, evaluate risk, and structure a loan that makes sense for where you're at today—and where you want to be tomorrow.

And remember: you’re not locked into your mortgage forever. Life changes, markets shift, and your mortgage can evolve too. If rates drop or your plans change, you can refinance to a new loan structure that better fits your future.

Want help running the numbers? Curious about 5/1 or 7/1 ARMs? Thinking about locking in a 30-year fixed rate but not sure if it's the best move? We can help you weigh your options and understand how the right structure today can set you up for flexibility tomorrow.

 Schedule a call with me today or get in touch with me by completing this quick form, and I'll help you understand your options.