This type has a fixed interest rate and the monthly payment does not change, which helps bring certainty to a monthly budget. The mortgage rate stays the same, regardless of market conditions.
Interest rates on ARMs change periodically, and the monthly mortgage payment goes up or down accordingly. Most ARMs have limits on the percentage points allowed up or down in a given period.
This is a good option for buyers who expect their incomes to rise. Basically, a percentage of interest is delayed and added onto the principal. Monthly payments start out low and then increase each year by about 5 percent to 7.5 percent, until they include all the interest due with each payment.
This option helps to quickly build equity. The payment starts at a typical rate, but increases each month according to a graduated payment schedule. The increased payments reduce the principal, shorten the loan's term, and cut your interest.