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There are two broad categories of mortgage loans fixed rate mortgages and adjustable rate mortgages although there may be several different types available. The decision to go with a particular mortgage loans depends on your present situation and the amount of risk that you are willing to take. In this article, we will cover the benefits and drawbacks of both mortgage loans, and give you some hints on choosing the best mortgage loan for your needs.

Fixed Rate Mortgages

Fixed rate mortgages are generally better options if security and stability are your primary concerns. Since fixed rate mortgages have a predetermined interest rate throughout the entire course of the loan, you will know exactly how much you have to pay every month. Hence your monthly principal and interest payment will remain unchanged for the duration of the mortgage. While some adjustable rate mortgages have an introductory period during which the interest rate is fixed, a true fixed rate mortgage has one interest rate for the entire term of the mortgage loan.

A distinct drawback of fixed rate mortgages is that the interest rates associated with them are generally higher than with adjustable rate mortgages. Generally speaking, the longer your mortgage loans terms are, the higher the differences in costs will be with fixed rate mortgages compared to adjustable rate mortgages. If the mortgage borrower plans to stay in their house for many years and believes that interest rates may go up, then the premium today could be a substantial savings tomorrow.

Adjustable rate mortgages (ARMs) Adjustable rate mortgages do offer lower interest rates at the outset, but interest rates and payments will likely change in the future. Interest rates on adjustable rate mortgages fluctuate based on general interest rates (otherwise known as an index). Many adjustable rate mortgages are considered hybrid mortgages and have a fixed introductory period of 1, 3, 5 or 7 years during which time the interest rate does not change. But other type of ARMs can reset at much more frequent intervals. These types of hybrid adjustable rate mortgages may be better options for you if you only intend to stay in your home for a few years. Bear in mind however that payments for adjustable rate mortgages may rise along with the rest of your interest rates. Many ARMs however impose limits on how high interest rates can increase during an adjustment period.

Choosing the right mortgage loan for you So how do you decide which mortgage loans are right for you? As we mentioned at the start of this article, that decision is dependent on the risk that you are willing to incur and your present situation. Fixed rate mortgages are generally a safer option simply because you know how much you will have to pay each month. Adjustable rate mortgages may be more affordable at the beginning, but there are more risks involved. No matter which loan you are considering, its important to compare loan types and shop around for the best mortgage loan for you.

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