Fixed-Rate Mortgages

A fixed-rate mortgage means the interest rate and principal payments remain the same for the entire life of the loan. (Taxes, of course, may change)

Advantages
Consistent principal and interest payments make this loan stable your rate won’t change, and you don’t need to be concerned about market fluctuations. A good choice if you’re likely to stay in this house for a long time.

Disadvantages
May cost you more — these loans are usually priced higher than an adjustable-rate mortgage. Keep in mind that, on average, most people move or refinance within seven years. If rates in the current market are high, you’re likely to get a better price with an adjustable-rate loan.

Types of Fixed-Rate Mortgages
30-Year Fixed-Rate Mortgage
20-Year Fixed-Rate Mortgage
15-Year Fixed-Rate Mortgage

Adjustable-Rate Mortgages

An adjustable-rate mortgage (ARM) means that the interest rate changes over the life of the loan — according to the terms specified in advance. With ARMs:

The initial interest rate and the monthly repayment rate are usually lower than with a fixed-rate mortgage.
The interest rate may be adjusted (up or down) at predetermined times. The monthly payment will then increase or decrease.
Most ARM programs do offer "rate cap" protection, which limits the amount the rate can be increased, both each year and over the life of the loan. All ARMs are amortized over 30 years.

Advantages
ARMs are usually priced lower than fixed-rate mortgages so you can increase your buying power and lower your initial monthly payments. If interest rates go down, you’ll enjoy lower payments. Usually an ARM is the best choice for homeowners who plan to relocate (for example, with their company or the military), or for those who are purchasing their first home and plan to be in the property only for three to five years. Remember that, on average, most people move or refinance within seven years.

Disadvantages
Your monthly payments can increase if interest rates go up. Keep in mind that ARMs are best for homeowners who aren't planning on staying with a property for a long period. If you’re on a fixed income, an ARM (especially a short-term ARM) may not be your best choice.

Types of Adjustable-Rate Mortgages
10/1 Adjustable-Rate Mortgage
7/1 Adjustable-Rate Mortgage
5/1 Adjustable-Rate Mortgage
3/1 Adjustable-Rate Mortgage
10/1 Interest Only Adjustable-Rate Mortgage
7/1 Interest Only Adjustable-Rate Mortgage
5/1 Interest Only Adjustable-Rate Mortgage
3/1 Interest Only Adjustable-Rate Mortgage

Adjustable-Rate Mortgage Disclosures
10/1 Year Adjustable-Rate Mortgage Loan Information Statement
7/1 Year Adjustable-Rate Mortgage Loan Information Statement
5/1 Year Adjustable-Rate Mortgage Loan Information Statement
3/1 Year Adjustable-Rate Mortgage Loan Information Statement
10/1 Year Adjustable-Rate Interest Only Mortgage Loan Information Statement
7/1 Year Adjustable-Rate Interest Only Mortgage Loan Information Statement
5/1 Year Adjustable-Rate Interest Only Mortgage Loan Information Statement
3/1 Year Adjustable-Rate Interest Only Mortgage Loan Information Statement
Consumer Handbook on Adjustable Rate Mortgages