One of the most important decisions you face in the home loan process is whether to take out a fixed or adjustable rate mortgage (ARM).

What's the difference?

A fixed rate mortgage locks in the interest rate at the time you close the loan. Once you close your loan, no matter what happens to interest rates or inflation, your monthly principal and interest payment will stay the same throughout the life of your loan.

The mortgage payment for an adjustable rate mortgage continually adjusts over time to changing interest rates. The rate stays current with the market, which can mean higher payments as time goes on. ARMs also typically start at lower interest rates than fixed mortgages do, and that can be good. Lower interest rates mean lower initial monthly principal and interest payments, just as higher future rates mean higher principal and interest payments.

So, if the rate starts out lower, shouldn't you just choose an adjustable rate? It depends.

Choose an Adjustable Rate Mortgage if:

• You believe that rates will remain the same or decline in the future.
• You plan on moving soon, potentially avoiding higher future payments.

Choose a Fixed Rate Mortgage if:

• You want peace of mind knowing your principal and interest payment won't increase.
• You plan on owning your home for a long period of time.
• You're happy with the fixed interest rate and feel the payment is comfortable for your budget.

Want to see the difference in the monthly payment?

Check out our mortgage calculators.