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Types of mortgages -- adjustable vs. fixed

Which is the better mortgage option for you: fixed or adjustable?

The low initial cost of adjustable-rate mortgages (ARMs) can be very tempting to home buyers, yet they carry a great deal of uncertainty. Fixed-rate mortgages (FRM) offer rate and payment security, but they can be more expensive.

Here are some pros and cons of ARMs and FRMs.

ARM advantages

  • Feature lower rates and payments early on in the loan term. Because lenders can use the lower payment when qualifying borrowers, borrowers can purchase larger homes than they otherwise could buy.
  • Allow borrowers to take advantage of falling rates without refinancing. Instead of having to pay a whole new set of closing costs and fees, ARM borrowers just sit back and watch their rates fall.
  • Help borrowers save and invest more money. Someone who has a payment that's $100 less with an ARM than with a FRM for a cou