Basic: Adjustable OR Fixed rate Mortgage

Deciding whether to take fixed rate mortgage (FRM) or adjustable rate mortgage (ARM) is a very important part of mortgage process. A good mortgage lender will describe you the pros and cons of both.Fixed rate mortgage (FRM) is a mortgage in which the interest rate is fixed for some period that can be 10 yrs, 15 yrs, 30 yrs. For that period interest rate will not change. FRM is liked by a lot of people because it provides certainty.
An Adjustable rate mortgage(ARM)has two components:
* Fix Component
* Adjustable Component
The interest rate is fixed for certain period of time, that can be as short as 6 months or as long as 10 yrs and after that the interest rate begins to adjust, they adjust up and down with the market.
Then why should someone take adjustable rate mortgage(ARM)? when they can have the certainty of fixed rate mortgage(FRM). The answer is very simple, most ARM have lower interest rate than FRM.

Adjustable Rate Mortgage:

• Moving with in 5 yrs

(first time home buyers,getting married etc)
People who knows that they will be moving within 5 yrs or so prefer adjustable rate mortgage(ARM). For example people who are first time home buyers or about to get married or having children. Average Americans moves every 9 yrs, we also know 30 yr FRM is only in the books. Before completing the 30 yr period, people move or refinance. Paying for 30 year mortgage, which is more expensive most of the time is not suitable. Especially if a person knows they will be in a new mortgage sometime in future.

Fixed Rate:

• Certain of being in your home for a long time.

Fixed mortgage is suitable for the people who are very very certain of being in the same home for a longer period of time.
Conclusively, working with a good mortgage lender to understand the pros and cons of both and to match your situation with the right mortgage is very important.