Home Loan Facts

Most types of loans fall into two major categories: fixed or adjustable rate. These two types of loans are very different and each work for very different kinds of borrowers. Here's a quick summary of the differences:

Fixed rate mortgages (FRM): Mortgages with an interest rate that remains constant for the entire duration of the loan. Fix rate's have longer terms (15-45 years) and higher interest rates than adjustable rate mortgages but are not at risk for changing rates. This kind of loan is best if you can afford a slightly higher mortgage payment, have good credit and want to make sure your interest rate will not rise in the future.

Adjustable rate mortgage (ARM): Mortgages where the interest rate changes periodically based upon a standard financial index. ARM's offer borrowers lower initial interest rates with the risk of rates increasing in the future. In comparison, a fixed rate mortgage (FRM's) offers a higher rate that will not change for the length of the loan. ARMs often have caps on how much the interest rate can rise or fall. This kind of loan is best if you want a lower mortgage payment, have some credit issues, or think that interest rates will fall in the future.

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