Ditech : Adjustable Rate Mortgage - ARM - vs Fixed Rate Mortgage

Anyone purchasing a new home will most likely have to obtain a home mortgage in order to be able to close the deal. There are two important factors in purchasing a home and each require considerable thought before making a decision - choosing the home itself and choose a home mortgage. A lender will present you with two different choices on a home mortgage - an adjustable rate mortgage (ARM) and a fixed rate mortgage.

What is a fixed rate mortgage? It is a type of mortgage that has a fixed interest rate for the life of the loan. The interest rate and terms of the mortgage is determined when you apply and are approved for a home loan. For the entire life of the loan, the interest rate and payments are consistently the same.

What is an adjustable rate mortgage? It is a type of mortgage with variable interest rates. The mortgage and interest rates are reviewed at a rate of one to three years during the life of the mortgage. When reviewed, a new interest rate will be assessed on the mortgage loan.

No one can determine what the interest rate will be when the review arises. There are many different factors that you should consider when you are deciding which mortgage you should choose. At first glance, the adjustable rate mortgage will look like the best choice. It will appear to have a much lower rate of interest than the fixed rate type.

You should keep in mind that an adjustable rate could result in more costs for you as time passes. If you take care to ask questions and conduct your research about recent and past interest rates, you may be able to determine which mortgage is best suited to your needs. The right mortgage has the same impact on your entire situation as your choice of homes.