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Why Fixed-Rate Loans are Better

Consider a fixed-rate loan even if adjustable-rate mortgages (ARMs) carry a lower initial interest rate. A fixed-rate loan adds certainty and stability to a big part of your loan payment, which can provide peace of mind, especially given that other housing costs -- such as real estate taxes, insurance and home upkeep -- are likely to rise in the future. ARMs generally start with a lower interest rate, but remember that an ARM rate can go up, sometimes significantly. It may be worth shopping around because you may be able to obtain a fixed-rate mortgage with payments comparable to an ARM and not have to worry about future rate increases.
"If you are thinking about an ARM, make sure you know how much and how often the interest rate and payment could go up before you sign on, and be comfortable that you can meet those higher monthly payments," cautioned Janet Kincaid, FDIC Senior Consumer Affairs Officer. "Don't let a low teaser rate lure you in; you may be surprised later."