When buying a home, there are various home loan programs to consider. One of the first choices a home buyer will need to make is whether you want a fixed-rate or an adjustable-rate home mortgage loan. The majority of the loan programs will fit into one of these two categories. However, there is a third option that is a “hybrid” of the two loan programs.
- Adjustable-rate mortgage, (ARM): The interest rate of the home mortgage adjusts periodically based on market conditions. For example, your payment will go up if rates go up and go down if rates go down.
- Fixed-rate Mortgage: Unlike an adjustable-rate mortgage, the interest rate is set at the time you take out the loan and will not change. Fixed-rate home loan terms can be 10 years, 15 years, 20 years or 30 years. A 30-year fixed-rate mortgage is the most common because it offers the lowest mortgage payment.
- Hybrid ARM: This loan program is a combination of an adjustable-rate mortgage and a fixed-rate mortgage. It features an initial fixed interest rate for a certain period of time. Then it becomes an adjustable-rate for the remainder of the term. Standard terms are 3, 5, 7, or 10 years.