Is it best to get a fixed rate mortgage or an adjustable rate mortgage, sometimes called an ARM? A lot of people aren't really sure of the advantages and disadvantages of either.

With a fixed rate mortgage the interest rate is fixed for the life of the loan. The interest rate won't change regardless of changes in the credit markets. With an adjustable rate mortgage the interest rate on the loan can change at predetermined intervals, usually once per year. Which is better?

Well the ARM can carry a lower monthly mortgage payment at the beginning of the loan. But if interest rate increases the interest on your adjustable rate mortgage will increase with it. That can make the ARM payment higher than the payment of the fixed rate mortgage. On the other hand if interest rates decline the ARM monthly payment will decline. Usually there is a maximum increase and a maximum decrease associated with an ARM called the Cap.

So which is better? Its hard to say. It all depends on what interest rates do. If they decline the ARM is better. If they increase the fixed rate loan is better.