Fixed-rate mortgages are very simple. The borrower knows the interest rate for the entire period of the loan from the beginning to end. The monthly payments are like wise fixed. Simple. Fixed-rate mortgages are good because they come with no surprises. However the interest rate will likely by slightly higher than an ARM interest rate. Fixed-rate mortgages are good for people who like stability. They permit you to lock in low rates for many years. They are especially attractive during periods when interest rates are low.

More complex is the adjustable-rate mortgage (ARM). Its rate changes from year to year, or specified period to reflect current interest rates. If rates are falling, your rate will also drop, but if rates rise yours will also rise. ARMs typically have an extra-low rate for the first period, as well as an upper limit, or cap. If interest rates are high, ARMS make more sense. ARMS will let you borrow more money. Just make sure you can handle the worst case senario.