A mortgage with a fixed rate has a stable principal and interest payment that will never change for as long as you have the loan. However the taxes on your property may increase as well as your homeowners insurance. If you escrow taxes and insurance these are the only things that can make a fixed rate mortgage payment increase, but the principal and interest payments will stay the same.

Fixed rate mortgages are available in a wide variety of repayment terms and they are: 30-year, 20-year, 15-year and 10-year. There are even options like the "bi-weekly" mortgage that helps you make your loans repayment period much shorter then actual amortization period.

With a "bi-weekly mortgage" you make half the payment every two weeks. Because there are 52 weeks in a year you end up making thirteen payments instead of twelve giving you an extra payment every year that will be deducted from your principal balance.

In the early part of a fixed rate mortgage most of your payment will go towards the interest of the loan and much less goes towards paying down the principal balance. Over time more starts to go towards principal and less towards the interest.

Most people choose the fixed rate loan to lock into a long term stable low rate.If you currently are in an adjustable rate home loan (ARM) then refinancing into a fixed rate mortgage will give you greater payment stability.

Adjustable Rate Mortgages come in more varieties then the fixed rate home loan does. Most ARM loans use an outside index to determine the amount of your monthly payment. Some of the commonly used indexes are the certificate of deposit (CD),the one year treasury security rate, the federal home loan banks 11th district cost of funds index (COFI),or others. They often adjust every six month to a year.

Almost all ARMS have interest rate cap in place that protects you from your payment amount going up to much at one time. There are also caps in place that limit how much the interest rate can increase for each period. This limits the rate increase regardless of what the index has adjusted to.

Instead of an interest rate cap you may have a payment cap on your loan. A payment cap does not cap the interest rate but limits the amount of payment increase the loan can have.In addition there are also lifetime rate ceiling caps on all adjustable mortgages. This sets the maximum interest rate your loan can reach regardless of any other factors. It is normal for ARM home loans to have their lowest rates at the start of the loan, this low rate can be locked in from a period of one month to 10 years.

Chances are if you have thought about getting an ARM loan you have heard the terms "3/1 ARM" or "5/1 ARM or something similar. What those numbers mean is that the initial low interest rate of the loan is set for 3 or 5 years and will adjust with the index once a year every year after the fixed rate period expires.

The adjustable home mortgage is often recommended for people who will be moving or selling a home before the fixed rate period expires. You may also take an ARM loan to take advantage of the lower interest rates if you know you will be buying a larger home or refinancing before the rate adjusts. Or you could simply make the higher payments if the rate goes up.

With an variable rate home loan you do have the risk of the interest rate increasing, but you can also have your interest rate decrease. And you also have the benefit of having a lower monthly payment for a few years which means more money in your pocket every month.

If you have any questions about fixed rate vs adjustable rate mortgages please feel free to contact one of mortgage professionals who can help you decide what home loan is right for you!