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Adjustable rate mortgages may appeal to consumers looking to purchase a home, especially if the house they want to buy is a bit larger than they could otherwise afford. Rates on adjustable mortgages, at least in the beginning, tend to be much lower than fixed-rate home loans. This means you may be able to get a house that is much larger and more luxurious with the same monthly payment. Moreover, if interest rates in your area are high, you may choose an ARM to take advantage of it's "built-in refinancing" - if rates fall, so does your loan's rate. You will not have to go through the expense of refinancing.

For first time home buyers, a 30-year mortgage might not be the best choice, even in this great interest rate environment. On average, people stay in a home for 8 years. If you are just starting out, it is likely you will want to move into a bigger, better home in the future as your income increases. For this reason, one of the 5/1 ARM mortgages. Payments are fixed for the first 5 years before they start to adjust. These loans are hybrids of the fixed/adjustable rate loans we all grew up with. The advantage is that initial rate is usually quite low, so you have the chance to save money for your next purchase.

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