If you’re in the market to get a mortgage you might have heard these words thrown around a bit. Well today I’ll  touch on the difference between the two and what to take in consideration when deciding which option might be best for you.

A fixed-rate mortgage is exactly how it sounds. The interest rate is fixed for the entire life of the loan and will never change. With  adjustable rate mortgages (ARMs), there is a chance that your interest rate may go up or down several time during the life of the loan. ARMs usually start off with a lower rate but has the potential to change due the the fact that these loans can adjust up.

Fixed Rate Mortgages:

• Interest rate remains constant and can make budgeting easier because your payment won’t change except if there is a change in your property insurance and/or property taxes.
• Good for when interest rates are rising.
• Fairly straightforward.
• If interest rates are dropping these mortgages are not beneficial because you’re locked in at at higher, fixed rate.

Adjustable Rate Mortgage (ARM)

• Rates and payments are usually cheaper early on in the loan.
• Offer a cheap way for borrowers who don’t plan on living in one place for very long to buy a house.
• Interest rate can be fixed for the first several years of the loan before adjusting (length of time varies by loan).
• There is a degree of uncertainty because the interest rate can rise or drop.
• Possibility the rate adjusts significantly higher than what it would have been if you got a fixed rate mortgage.

So of course the million dollar question is which one should you choose? I’m sorry to disappoint but the answer is – it depends on you. If you want to start off with a lower mortgage payment and you’re confident you’ll be in a solid financial position when the rate starts adjusting then you might want to get an ARM. You can use that money you save early on towards investing or saving. If you would rather the security in knowing your interest rate is not going to go up, then a fixed-rate mortgage might be your best bet.