Fixed Rate & ARM
Mortgage loans are categorized as either fixed rate mortgages (FRM), adjustable rate mortgages (ARM) or some combination (hybrid) of the two. This classification is based on the type of interest rate structure governing the loan. The most common mortgage terms are 30 or 15 year loans (also, 25, 20 and 10). Generally, a short term loan will have less interest and higher payments - a long term loan, more interest and lower payments. A 15 year mortgage may have less than half the interest costs of a 30 year mortgage.

Characteristics of a fixed rate mortgage:

• The interest rate is fixed for the life of the loan (whether interest rates go up or down)
• Payments generally stay the same each month

Characteristics of an adjustable rate mortgage:

• The interest rate is adjusted periodically by adding a margin to an index specified by the mortgage (a 1-year ARM adjusts annually)
• Payments generally fluctuate along with the interest adjustment
• ARM's have limits on the amount of interest adjustment that can be made in given periods and across the life of the loan

Characteristics of a hybrid loan:

• The interest rate follows some set plan for adjustment, using a combination of fixed and adjusting interest rates
• Options are designed to meet a wider variety of needs
• Qualifying standards are often more liberal than traditional loans