Mortgage Loan 101: What Is an Adjustable Rate?

Question: I'm 22, I have great credit, and I'm new to looking for the best mortgage quotes. But I'm still not certain about the difference between a fixed rate and an adjustable rate. The mortgage brokers I talk to all assume I know, but I'm a little embarrassed to ask. Help!

Answer: First, don't panic. When I was in my twenties, I didn't know a thing about mortgages. We never talked about this in high school, and I dozed through my 8 am accounting class in college. All I could do was ask people I trusted. Today, it's easier to turn to the Web for advice, but don't worry about getting mocked by mortgage brokers, either. Many of the best brokers I know see consumer education as one reason they got into the business.

Fixed-rate mortgages are for the long haul, on a home you intend to own for fifteen, thirty, or even forty years. You pay the same interest rate and make the same payment for the life of the loan. Adjustable-rate mortgages (ARMs) change with the market. They can go up and down really quickly, and they work best on properties you don't intend to spend a lot of time in. Adjustable mortgage quotes often seem cheaper up front, but they can turn into major monthly payments if the market heads north.