If you have a Fixed-Rate Mortgage, the total interest and monthly payments are set at closing. You repay the principal and interest in equal, usually monthly, installments over a 15-, 20-, or 30-year time period. Under most circumstances, you can choose to pay off your mortgage more quickly, which means you'll owe less interest over time. |
 Your payment stays the same throughout the life of the loan
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An ARM has a variable interest rate that changes on a regular schedule-usually once a year-to reflect market fluctuations. Unlike Fixed Rate Mortgages, the total cost can't be figured in advance, and monthly payments may rise or fall over the term of the loan.
However, most ARMs have caps, or limits, on the amount the interest rate can change. An annual cap limits the rate change each year (usually to two percentage points) while a lifetime cap limits the change over the life of the loan (usually to five or six points). |
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 Monthly payments rise and fall depending on the current market rate |
