Fixed-Rate vs. Adjustable-Rate Mortgage Loans

As you might imagine, FRMs are more popular. Most home buyers want the security of knowing how much their mortgage paying will be each month. An FRM will allow you to more easily manage your monthly and yearly budget. If you have an FRM and rates do drop precipitously, you can always refinance.

On the other hand, some homebuyers are drawn to ARMs, which often feature lower initial interest rates. For example, an ARM can be a good choice for a young couple purchasing their first home; they may not have a lot of assets now, but they anticipate making more money within a few years. An ARM can let them take advantage of low rates now, and they will be able to afford a slighter higher rate in the future. And in a few years, they can refinance with an FRM to lock in a favorable rate.

Which type of mortgage is right for you? Basically, it comes down to two factors:

1. How comfortable you are with risk
2. How long you plan to live in the house