A fixed rate loan is where the interest rate remains the same over the life of the loan whereas an adjustable rate fluctuates based on market indicators.  Interest rates and mortgage options are ever changing so choosing between a fixed rate loan or an adjustable rate loan would depend on: 

• Mortgage options and/or interest rates available when you’re buying a house
• Your future plans with the house
• Your personal financial goals
• Your willingness to take a risk

When rates are low, a fixed rate mortgage is usually the best bet for most buyers.  It’s pretty safe to guess that rates will fluctuate over the next five, ten or thirty years.  With ARM loans the initial interest rate will often be lower than a fixed rate loan which is why it’s called a teaser rate loan.  These loans are good for a short period of time and are designed for those buyers not looking to keep their homes for any extended period of time. 

Probably the biggest factor to consider when looking at an adjustable rate loan (ARM) is that while the rates are a little lower in the short run, they will adjust up soon.  For this reason, the ARM option must be carefully considered to determine where the break-even point is.         

Last updated on November 16, 2010 by Admin