Texas Mortgage Rates Explained: Fixed vs. Adjustable Rate Loans

Choosing between a fixed-rate and adjustable-rate mortgage (ARM) is one of the most consequential decisions in the homebuying process. The right choice depends on your financial situation, your plans for the property, and your assessment of where interest rates are headed. Here is what Texas homebuyers need to know.

Fixed-Rate Mortgages

A fixed-rate mortgage locks in your interest rate for the entire loan term — typically 15 or 30 years. Your principal and interest payment remains constant regardless of what happens to broader interest rates. This predictability makes budgeting straightforward and eliminates the risk of payment increases. The 30-year fixed is the most common mortgage product in Texas and across the United States, favored for its stability and lower monthly payments compared to shorter terms.

The 15-year fixed has a higher monthly payment but significantly lower total interest cost over the life of the loan and typically qualifies for a lower interest rate than the 30-year option. If you can comfortably afford the higher payment, the 15-year dramatically accelerates equity building.

Adjustable-Rate Mortgages (ARMs)

An ARM features an initial fixed-rate period followed by rate adjustments tied to a market index. The most common product is the 5/1 ARM: fixed for 5 years, then adjusting annually. A 7/1 ARM is fixed for 7 years. After the fixed period, rates adjust based on the index (often SOFR, the Secured Overnight Financing Rate) plus a margin. Caps limit how much the rate can increase per adjustment and over the life of the loan — typically 2% per adjustment and 5-6% total over the starting rate.

Current Texas Market Considerations

Texas has some of the highest property taxes in the nation, which significantly impacts total housing costs beyond mortgage principal and interest. When comparing loans, calculate the total PITI (Principal, Interest, Taxes, Insurance) payment rather than just the P&I. In Texas markets like Austin, Houston, Dallas-Fort Worth, and San Antonio, property tax rates commonly range from 1.8% to 2.8% of appraised value annually, adding hundreds of dollars per month to housing costs on median-priced homes.

Refinancing Considerations

The general rule of thumb for refinancing — that you need to lower your rate by at least 1% — is overly simplistic. A more accurate analysis calculates your break-even point: divide the total closing costs by the monthly savings from the lower payment. If you plan to stay in the home longer than the break-even period, refinancing makes financial sense. Streamline refinance options are available for FHA and VA loans, with reduced documentation requirements.

Use our mortgage calculator to compare loan scenarios, or speak with a Texas mortgage specialist for personalized guidance.