ARM vs Fixed: Understanding the Risk Tradeoff
Lower initial payments come with hidden sensitivity. Stress testing shows when ARMs make sense—and when they don’t.
Why ARMs feel safe at first
Lower initial rates improve cash flow. But ARMs concentrate risk into future rate adjustments.
The real danger: breakpoints
Many ARM holders don’t realize how little it takes for their payment to flip their budget negative.
Who ARMs work best for
- Short-term owners
- High savings, low sensitivity households
- Planned exits before reset
Who should avoid them
- Thin margins
- Variable income
- Long-term holders without buffers
Use the rate stress test to see how your payment reacts under real hikes.