Shopping for a mortgage can be confusing, as there are a large number of mortgage lenders and an even greater number of different types of mortgage loans. One of the biggest choices when deciding upon a mortgage is whether you should go with a fixed rate mortgage or with an adjustable rate mortgage (also known as an ARM).

Fixed rate mortgages have been around for a long time; they offer interest rate stability and the security of knowing exactly what you will pay for your mortgage each month. In contrast, the newer ARMs allow the interest rate associated with the loan to vary, usually on the basis of a major market index such as the one year constant-maturity Treasury bill rate (TCM) or the London interbank offered rate (LIBOR). Unlike a fixed rate mortgage, the interest rate with an ARM can reset at regular intervals, so as the financial markets move up and down, so can your mortgage interest rate and your resulting monthly mortgage payment.

Some homeowners are tempted by the low introductory interest rates that most ARMS offer, but when the introductory period ends, the ARM can potentially reset to a much higher rate. When interest rates are low, however, a homeowner with an ARM will pay less than what most fixed rate mortgage holders will pay. Be sure to read all of the terms and conditions associated with the quote for an ARM to determine what the maximum possible interest rate and resulting monthly payment could be. If the highest possible payment will be difficult for you to make, you need to think twice before signing on for an ARM.

One important consideration in the choice between a fixed rate mortgage and an ARM is the length of time you intend to own your home. In general, if you are only planning to live in your home for a few years, an ARM might make good financial sense, as you would realize the cost savings associated with the low introductory interest rate. On the other hand, if you intend to live in your home for many years or for an indefinite period of time, it might be a wise move to choose a fixed rate mortgage. Additionally, if you are the type of person who is financially conservative, having the security of a fixed rate mortgage where your payment amount every month is a certainty may help you to sleep better each night.