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There seems to be an invisible line dividing people into two camps when it comes to the question of getting a “fixed rate” or “adjustable rate” mortgage (often referred to as ARM). Imagine if you will, Camp Fixed Rate trading gazes from their cabin porch with Camp Adjustable Rate across the way, reclining beside their tent. There are pros and cons to either approach, depending on what you want to achieve with your mortgage. The most important difference is time.

First, what do these terms mean? A Fixed Rate Mortgage is a mortgage where the interest rate that you proceed with at settlement is exactly the same rate on day one as it is at the end of repayment, which could be decades later. An Adjustable Rate Mortgage, or ARM, is a mortgage where the interest rate adjusts on a schedule that you agreed to, and whatever the markets are doing at the time of the adjustment, that’s the direction that your rate will move, too.

Adjustable Rate Mortgages are initially lower than fixed-rate loans. They can be a good deal if you know you're going to stay in your home for a relatively short period of time. Using an adjustable rate mortgage does expose you to the risk that interest rates could rise, though, and drive up your monthly payments.

Fixed Rate Mortgages have higher initial interest rates but provide the peace of mind of knowing exactly what your rate will be for the entire term of your loan. With a fixed-rate mortgage there is no risk of your rate rising, even if general market interest rates rise.

Which camp is for you? Well, start by taking a good look at your budget and your tolerance for risk. Not a risk taker? Camp Fixed Rate it is. Take a look at how long you plan to stay in your home, too. Only planning on living there for a few years? Camp Adjustable Rate may be ideal while rates are historically low. Run scenarios with a Loan Officer and discuss what options are available to you. The question between the two isn’t “which one is better,” it’s “which one is better for you.”