Fixed Rate: The rate is set and fixed at closing. And it remains fixed at that rate for the length of the mortgage.

Adjustable Rate Mortgage (ARM): There are several rate scenarios regarding ARM's. The basic principal is that the rate is pegged to a particular published base rate such as the Prime Rate, U.S. Treasury Rate, Libor Rates, etc. These rates move up and down based on the economy and Federal Reserve Policy. As a result, your mortgage rate moves up or down in accordance with the basic rate. The advantage to an ARM is that starting ARM rates are generally lower than fixed rates which allows you to qualify with less income. It also allows you to start with lower payments that can increase along with your income.

Starting Rates 5 4 3 2 1 1=Lowest 5=Highest

Mortgage Terms 30 years 15 years 3/27 2/28 6 month Libor

Rate Fixed Fixed 3 years fixed, 27 years ARM 2 years fixed, 28 years ARM Adjust every 6 months for term