FRMs vs. ARMs
While there are many different mortgages available, all of them fall into one of two rate categories: fixed or adjustable. FRMs hold the same interest rate for the life of the loan. ARMs are tied to an index, and the rate you pay moves up and down with that benchmark. ARMs have many variables, but the most relevant are:
How long the initial rate is in place
How often, and by how much, the interest rate can be adjusted
Security vs. savings
On the fixed side, you have the security of knowing that your payment will never change. But with an adjustable rate, you may save thousands of dollars with a low opening rate. Deciding which program makes more sense for you boils down to two things:
How long you plan to own your home
How comfortable you are with risk
Most ARMs have an opening interest rate that remains constant for three, five or seven years. If you plan to sell your home in five years, for example, you could take advantage of the low opening rate, and then sell before it changes. Determine how much you can save by using an online calculator to figure out what the FRM and ARM payments would be. (You can find ARM and FRM refinance rates for your state of residence online.)
Even if you're fairly certain that you'll be selling in the next few years, you still have to weigh the risk factor. If you have a very low tolerance for risk, an ARM probably isn't for you. If the FRM ends up costing a little more, so be it. Consider that the price that you pay for the security of a fixed payment.
See, no coin toss necessary! FRMs and ARMs can duke it out-but you probably already know who the winner is.
http://www.mortgageloan.com/which-refinance-mortgage-loan-is-right-for-you
