Adjustable Rate Mortgages (ARMs) are those whose interest rates change at certain intervals. Intervals can be every 1 month, 3 months, 6 months or 12 months.

Things to consider regarding Adjustable Rate Mortgages:

• Interest rates are generally .5% to 3% lower than fixed rate mortgages.
• Offer lower monthly payments than fixed rate mortgages for similar financing/credit situations.
• Highly recommended for people trying to improve their credit.
• Often contains prepayment penalties if refinanced prior to a specified period of time.
• Scheduled payment changes can be hard on a fixed income or tight budget.
• Rates generally do not go below the initial rate obtained, though they can go much higher.

Many Adjustable Rate Mortgages begin as Fixed Rate Mortgages in order to allow for lower initial monthly payments. Fixed rate terms on these types of loans are either for 2, 3, 5, 7, or 10 years.

Six and twelve month ARMs can significantly lower a mortgage payments (for six or twelve months), which can be enough time to catch up on other debt payments and improve your credit rating. At the same time, these loans can become expensive after the initial six or twelve month introductory period. Prior to, or at the end of this period, you'll often want to obtain a better loan to avoid the new higher interest rates or Balloon payment.

Fixed Rate Mortgages provide a stable interest rate and payment amount for a fixed period of time. Some fixed rate mortgages convert to Adjustable Rate Mortgages after their initial fixed period. Others remain fixed for the life of the loan.

Fixed rate mortgages have the following qualities:

• Fixed monthly payment and rate protect against interest and monthly payment increases
• Can be obtained for 2, 3, 5, 7, 10, 15, 30 and 40 year periods.
• Higher interest rate compared to ARM introductory rates
• Higher rate compared to two and three year, fixed rate loans
• May include prepayment penalty if refinanced before a specified period of time.

• Fast close
• Less "red tape"
• Easy qualification guidelines
• Higher interest rate
• Higher loan fee

Particularly useful for people who have difficulty qualifying for other traditional programs due to credit scores or scars.

10/1 ARM
7/1 ARM
3/1 ARM
1 year ARM
6 month ARM
2/28: 2 yr. fixed rate; 28 yr. ARM
1 month ARM

• Lower initial monthly payment
• Lower payment over a shorter period of time
• Rates and payments may go down if rates improve.
• May qualify for higher loan amounts
• Potential for high payments if rates go up

Generally better products for people with Good to Excellent credit.  The number preceding (in front of) the slash (/) above indicates the period of time the loan's payment is "fixed". Thus, with a 10/1 ARM, loan payments are fixed for 10 years. At year 11, the loan converts to an Adjustable Rate Mortgage. The rate and payment changes that year, and continues to change annually until the loan is paid in full or refinanced. 

15 year (30 yr. fixed, due in 15)
7 year
5 year

• Lower initial monthly payment
• Lower payment over a shorter period of time
• Risk of rates being higher at the end of the initial fixed period
• Many balloon mortgages offer the option to convert to a new loan after the initial term
• Risk of foreclosure if you cannot make the balloon payment, refinance or exercise the conversion option

Excellent product for those with exceptional credit and a large downpayment, yet don't want can't or don't want to verify income or assets.

The benefit of this loan is that you don't have to "qualify" each time you want to access the equity in your home. You have a "line of credit" with the lender that allows you to access the equity with a check book or credit card, as your needs/desires dictate.

You only borrow what you need

• Fixed payments
• Receive one lump sum at closing
• Interest may be tax deductible
• Higher interest rates compared to 1^st mortgages
• May be harder to refinance your first mortgage

Hot new product, perfect for investment, high value or properties in markets with rapid appreciation!

• Choose between 4 payment options each month
• Pay interest only for up to 5 years
• Interest payments as low as 1%
• 5% to 20% down payment required
• Deferred interest creates potential for negative amortization (increase in mortgage balance)
• Sometimes difficult to obtain subordinate financing