Comparing Closing Costs for Fixed vs. Adjustable-Rate Mortgages

30 August 2025

When buying a home, choosing between a fixed-rate mortgage (FRM) and an adjustable-rate mortgage (ARM) is a big decision. But besides the obvious differences in interest rates, there’s another crucial factor to consider: closing costs. These can add up fast and impact your overall loan affordability.

So, how do closing costs differ between these two types of mortgages? And which one might save you money in the long run? Let’s break it down in a simple, easy-to-digest way.

📌 What Exactly Are Closing Costs?

Before jumping into comparisons, let’s clarify what closing costs are.

Closing costs are the fees and expenses homebuyers pay when finalizing their mortgage. These typically range from 2% to 5% of the loan amount and cover services like:

- Loan origination fees (what lenders charge for processing your loan)
- Appraisal and inspection fees
- Title insurance and title search fees
- Prepaid interest and property taxes
- Homeowners insurance and escrow setup
- Discount points (optional fees to lower your interest rate)

Now that we know what goes into closing costs let’s compare how they stack up for fixed-rate vs. adjustable-rate mortgages.

🔍 Fixed vs. Adjustable-Rate Mortgages: A Quick Overview

Before breaking down closing costs, here’s a quick refresher on how these two loans work.

✅ Fixed-Rate Mortgage (FRM)

- Interest rate stays the same for the entire loan term (commonly 15, 20, or 30 years).
- Predictable monthly payments, making budgeting easier.
- Typically higher initial interest rates compared to ARMs.

🔄 Adjustable-Rate Mortgage (ARM)

- Lower introductory interest rate for a set period (e.g., 5, 7, or 10 years).
- After the intro period, the rate adjusts periodically based on market conditions.
- Lower initial payments but potentially higher future costs if rates increase.

Now, let’s get into the nitty-gritty—how closing costs compare between these mortgages.

💰 Comparing Closing Costs: FRM vs. ARM

1. Loan Origination Fees

- Fixed-Rate Mortgage: Lenders often charge standard origination fees, typically 0.5% to 1% of the loan amount.
- Adjustable-Rate Mortgage: ARMs sometimes have slightly lower origination fees, as lenders encourage borrowers with lower initial rates. However, this depends on the lender and loan terms.

🔎 Verdict: ARMs can have a slight edge here, but the difference is usually minor.

2. Discount Points

- Fixed-Rate Mortgage: Many buyers choose to buy discount points to lower their permanent interest rate, which increases upfront closing costs.
- Adjustable-Rate Mortgage: Borrowers often avoid discount points since the interest rate is already low during the intro period, reducing closing costs.

🔎 Verdict: ARMs often win here as borrowers typically skip paying for discount points.

3. Appraisal and Inspection Fees

- These costs are independent of your loan type.
- Appraisal fees (~$300-$700) and inspection fees (~$300-$500) are required for both FRMs and ARMs.

🔎 Verdict: No major difference—you’ll pay these fees regardless.

4. Title Insurance and Title Search Fees

- Fixed-Rate Mortgage: Standard fees apply, typically ranging from $1,000 to $2,500, depending on location.
- Adjustable-Rate Mortgage: Same costs apply here.

🔎 Verdict: Again, no difference—it’s a necessary expense for both loan types.

5. Interest Rate and Prepaid Interest

- Fixed-Rate Mortgage: Since FRMs have higher starting rates, you might pay more in prepaid interest at closing.
- Adjustable-Rate Mortgage: With a lower intro rate, prepaid interest fees at closing are generally lower than FRMs.

🔎 Verdict: ARMs save you some cash here.

6. Escrow and Prepaid Property Taxes

- Lenders require escrow accounts for both loans to cover taxes and insurance.
- Prepaid property taxes depend on local rates—not your mortgage type.

🔎 Verdict: No major difference—both require setting up an escrow.

7. Mortgage Insurance (If Required)

- If your down payment is less than 20%, you might need private mortgage insurance (PMI).
- PMI costs depend on the loan amount but aren’t significantly different between FRMs and ARMs.

🔎 Verdict: No substantial difference—though ARMs may offer lower initial PMI payments due to their lower starting interest rate.

📊 So, Which Loan Has Lower Closing Costs?

Here’s a side-by-side closing cost comparison:

| Closing Cost Component | Fixed-Rate Mortgage (FRM) | Adjustable-Rate Mortgage (ARM) |
|---------------------------|----------------------------|-------------------------------|
| Loan Origination Fees | Standard (0.5% - 1%) | Slightly Lower or Standard |
| Discount Points | Often Purchased | Rarely Purchased (Lower Cost) |
| Appraisal & Inspection | No Difference | No Difference |
| Title & Search Fees | No Difference | No Difference |
| Prepaid Interest | Higher (Due to Higher Rate) | Lower (Intro Rate is Lower) |
| Escrow & Property Taxes | No Difference | No Difference |
| Mortgage Insurance (If Required) | Slightly Higher Due to Rate | Slightly Lower Initially |

🏆 Winner? Adjustable-Rate Mortgages!

While the differences aren’t massive, ARMs tend to have slightly lower closing costs due to fewer discount points and lower prepaid interest payments.

However, this comes with a trade-off—potentially higher costs later when your interest rate adjusts.

🏡 Which Mortgage Should You Choose?

Your decision shouldn’t be based on closing costs alone. Consider the bigger picture:

✔️ Go for a Fixed-Rate Mortgage if...
- You plan to stay in the home long-term (7+ years).
- You want stable, predictable payments.
- You don’t want to worry about rising interest rates.

✔️ Choose an Adjustable-Rate Mortgage if...
- You plan to sell or refinance before the intro period ends.
- You want lower upfront costs and lower initial payments.
- You’re comfortable with interest rate fluctuations in the future.

If you’re buying your “forever home,” a fixed-rate mortgage is safer. But if you’re planning to move in a few years, an ARM can save you money upfront.

✅ Final Thoughts

Closing costs are an unavoidable part of buying a home, but the type of mortgage you choose affects how much you’ll pay. While ARMs tend to have slightly lower closing costs, they come with uncertainty after the fixed period ends.

At the end of the day, it’s not just about what’s cheaper today—it’s about what makes sense for your financial future. Before committing, compare offers, ask lenders about fees, and consider your long-term goals.

Happy home buying!