Information on Adjustable Rate Mortgage and Fixed Rate Mortgage Loans

It’s often been said that a person’s home is probably the single biggest investment he or she can make in life. It’s true; owning a home can be very expensive, but it is necessary. Shelter is a primary need and whether you are single or married with kids, you would need a place of your own. And if you don’t want to go on renting forever, you will have to invest in one.It is assumed that unless you’re counting on some inheritance or some other windfall, you will take out a mortgage when buying your home. Before committing yourself to any mortgage arrangement, however, be sure to learn more about the differences between an adjustable rate mortgage (ARM) loan and a fixed rate mortgage (FRM) loan so you can choose wisely.The Adjustable Rate Mortgage (ARM)The adjustable rate mortgage or ARM is also known as a variable rate mortgage where the interest rate is adjusted periodically based on prevailing economic indices. The basic features of the ARM which you must look into are: initial interest rate, adjustment period, conversion, interest rate caps, margin, negative amortization, and prepayment penalties. Do not be intimidated with those terms because you can always figure out their effects on your intended loan by using the many online financial calculators.The Fixed Rate Mortgage (FRM)This may be the type of mortgage loan you are more familiar with, something that your parents might have had. As the name implies, interest rate on the FRM loan remains unchanged for the whole term of your loan. Common terms of mortgage loans run for 15 or 30 years.Choosing Between the ARM Loan and the FRM LoanYour choice between the two modes of interest rates will depend on which you value more: the stability of the fixed rate mortgage or the flexibility of the adjustable rate mortgage. It seems that more people favor FRM loans because the interest rate is locked in for the entire life of the loan. People generally would want to feel safe with their mortgage payments, paying the same amount for the rest of the loan term regardless of how the interest rate fluctuates in the financial market.Some borrowers fear the risks associated to ARM loans. Since the interest rate is tied to economic indices, there is always that likelihood of the interest rate increasing. And if that happens, their monthly payments will also increase for sure. Then again, the interest rate can go down anytime if the economic conditions become more favorable. As a result, monthly payments will be lower.According to financial experts, it is advisable to opt for the adjustable rate mortgage if you do not have any plans of keeping the loan for its full term, meaning if you intend to sell your house anytime before paying it off.To help you determine which of the two — the ARM loan or FRM loan — is the better option for your particular situation, you can browse the Web and access one of the many sites that offer free financial calculators. Use them to compare the two modes of interest for you. The figures you can get from those sites should give you an indication of how your monthly payments will look like if you go for the surer fixed rate mortgage or the more flexible adjustable rate mortgage.

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