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Adjustable Interest Rates
If You Can't Afford A Fixed Rate, Get An Adjustable Rate Mortgage
Unlike our parents and grandparents, first-time-home buyers of today have many options when shopping for a mortgage.
The two most common mortgage types are the fixed-rate mortgage and the ARM, or adjustable rate mortgage. The difference, obvious by name, is that those who qualify for a fixed-rate mortgage get a set rate throughout the life of loan. In the case of an ARM, the rate will fluctuate based on certain indices, commonly one, three or five-year treasury securities. Of the two, the ARM is considered more risky due to the adjustable interest rate, which may cause the monthly payment to rise.
Again, a fixed rate mortgage has a monthly payment and interest rate that will remain constant throughout the duration of the loan. This protects the buyer from fluctuating interest rates. However, the security of a fixed-rate is more expensive and can be harder to qualify for at times when interest rates are higher.
On the other hand, an ARM rate can be lower than market rates at the outset, allowing buyers to qualify for a larger loan. Those rates can rise as market conditions dictate, causing the buyer's monthly payments to rise as well. Another downside to an ARM is that they are more complicated than fixed-rate mortgages counterparts with adjustment frequencies, indexes, margins, caps and ceilings. An ARM may be the best option for a homebuyer that's not planning on staying in the house for more than a couple of years.
Now may be a great time to try buying a home with rates at historic lows and buyer incentives from homebuilders and the government. The options may be more complicated than in our parents time, but the availability of online calculators make setting goals and knowing what you can afford easy. | 
