One of the first choices a homebuyer will need to make is whether to get a fixed rate or an adjustable rate mortgage loan. The bulk of loans will fit into one of these two categories. A third option may be a hybrid of the two, if available.
With an adjustable rate mortgage (ARM), after an initial fixed rate period (could be 1, 3, 5, 7 or 10 years), the interest rate of the mortgage adjusts periodically based on market conditions. Depending on the adjustment, your payment will go up if rates go up and can go down if rates go down. With a fixed-rate mortgage, unlike an adjustable-rate mortgage, the interest rate is set at the time you complete the loan process and will not change after that. Fixed-rate home loans are typically 10, 15, 20 or 30 years but can also be set for other lengths of time in between. The 30-year fixed mortgage is the most common term utilized because it allows your mortgage payment to be the lowest.