Fixed Mortgage - Get lower Interest rate mortgage

According to experts, fixed-rate mortgages, or FRMs, are the most predictable financing vehicles. FRMs provide homeowners with a locked-in interest rate for the life of the mortgage and enable borrowers to make a fixed monthly mortgage payment that covers the interest and a portion of the loan's principal. FRMs are only apt to increase when real estate taxes rise, since most mortgage payments include real estate taxes.

As a result, fixed-rate products are perfect for long-term budget planning and, in instances when rates drop, homeowners have the option of refinancing to secure a lower interest rate. Nevertheless, FRMs have their downsides. Their interest rates are typically higher than those of other types of mortgages, and if interest rates drop and homeowners want to refinance, they incur the expense of closing costs.

In contrast, after a set period of time, an interest rate on an adjustable rate mortgage, or ARM, changes to reflect market conditions. Typically, buyers are drawn to ARMs because these mortgage products start with a lower rate than a traditional fixed-rate vehicle, which means they enable homebuyers to borrow more money and purchase a better or bigger home.

But ARMs are unpredictable; monthly mortgage payments can increase and make long-term budget planning difficult.

Experts generally recommend an ARM for first-time buyers who anticipate moving in five to seven years and fixed-rate mortgages for buyers who are more settled and expect to stay in their new home at least a decade.

Borrowers "need to key the type of mortgage they choose to the amount of time they plan to stay in their home," says Melissa Cohn, president of Manhattan Mortgage Company.

Another popular financing vehicle today is the interest-only loan, which enables homeowners to pay only the interest on their mortgage for a period of five or ten years. Afterwards, though, borrowers get hit with a large increase in their monthly payments for the remainder of the mortgage. What's more, many interest-only loans have adjustable rates.

While interest-only loans can be risky financing vehicles, they do make sense for some borrowers. These include professionals who are starting out in their careers and are convinced that their incomes will increase in the years ahead. An interest-only vehicle provides them with more affordable, lower monthly payments at the outsets as well as an opportunity to gain a foothold in the still-appreciating real estate market.