What's the difference between a fixed and adjustable rate mortgage?

In a fixed rate mortgage, the interest rate you pay does not change over the life of the loan. This is true of the 40 year, 30 year, and 15 year fixed mortgages. Regardless of market changes, you will have the same interest rate and payment for either 40, 30, or 15 years.

With adjustable rate mortgages, there is an initial period of time where your interest rate will be fixed, and then after that time period, your interest rate will fluctuate based on the specific loan terms in your mortgage. Typically, the shorter the time period the loan is fixed, the lower the rate. Often a 2 Year ARM (where the loan is fixed for the first 2 years, and then adjustable for 28 years after that) will have a lower interest rate than a 5 Year ARM (where the loan is fixed for the first 5 years, and then adjustable for 25 years after that).

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