What are the differences between fixed and adjustable rate mortgages?

Adjustable rate mortgages (ARMs) offer a lower initial interest rate than most fixed rates loans; however, the interest rate can change periodically (usually in relation to an index) and your monthly mortgage payment will go up or down accordingly. With a fixed rate mortgage, your interest rate and monthly mortgage payments will stay the same for the life of your loan, regardless of market conditions. When weighing the advantages and disadvantages of both, it is important to consider how much risk you are willing to assume. For many people, an ARM is the right mortgage choice, particularly if your income is likely to increase in the future or if you only plan on being in the home for 3 to 5 years. On the other hand, if you are looking to put the kids through college or buy a new car in the future, then a fixed rate mortgage is a safer choice.  more