For most people, the greatest benefit of fixed rate loans is their predictability. Your payment will remain the same from your first payment till your last. While fixed rate loans tend to have higher rates than adjustable rate loans, people place great value on the psychological comfort of this predictability.

Why then would someone ever choose an adjustable rate mortgage (ARM)?

Homebuyers often choose ARMs because the lower rates (a) make it easier to qualify and (b) may allow them to get a larger mortgage. Beyond this situation, an ARM product makes sense if you know you will only be in the home a short period of time. The increasingly popular 3/1, 5/1 and 7/1 ARMs is a good choice for people who expect to move or refinance their home, before or shortly after the adjustment occurs.