Adjustable-rate mortgages (ARMs) are loans with interest rates that change. ARMs may start with lower monthly payments than fixed-rate mortgages.

There may be a few things to consider when deciding on an adjustable mortgage rate:

• Your monthly payments could change.

 

• Your monthly payment could go up, sometimes by a lot, even if interest rates has not changed.

 

• Your payments may not go down much, or at all, even if interest rates go down.

 

• You could end up owing more money than you borrowed--even if you make all your payments on time.

 

• If you want to pay off your adjustable mortgage early to avoid higher payments, you might have to pay a penalty.

At the time of your initial finance, adjustable rate mortgages are initially lower than a fixed rate mortgage, but will increase over a few years. Adjustable rate mortgages are good if your immediate financial situation requires a lower payment or if your credit needs improvement and your looking to get yourself established in a mortgage.

Once someone establishes a mortgage payment history, and if fixed interest rates have gone down, borrowers usually refinance into a fixed interest rate.