ARMs vs. fixed 30-year mortgages
An alternate option to fixed-rate mortgages are adjustable-rate mortgages. ARMs offer interest rates that can increase or decrease after an initial fixed period. For example, a 5/1 ARM has a fixed interest rate for the first five years, and can change annually for the remaining 25 years.
Since your interest can fluctuate after the fixed period, so can your monthly payments and total interest — depending on the market indexes. To compensate, most ARMs start with lower interest rates than fixed-rate mortgages, making them appealing to borrowers.
If you plan on staying in your home for the long term, a 30-year mortgage can offer you the most stability. But if you plan on moving in five years, an ARM can save you in interest and bring down your monthly payments.