The four basic types of mortgages, fixed rate, adjustable rate, VA loans and FHA loans can be confusing. However, the two federal backed loans, the Veterans Administration (VA) loan is only for veterans and the Federal Housing Authority (FHA) loan is only for low income families and has other restrictions as well so most people looking for a home loan won’t qualify for them. Most people will be working with a mortgage company or bank on a fixed rate or adjustable rate mortgage.

Paying a fixed rate for either 15 or 30 years means the amount you pay each month won’t change for the life of the loan. Since the mortgage rate is fixed, you’ll never have to worry about the rate changing to something you can’t afford; however an adjustable rate mortgage (ARM) can possibly save you money in the long run. Since the initial rate for an ARM is usually lower than a fixed rate, as long as the interest rates remain low, it’ll be less expensive than a fixed rate loan.

Even though it may be a little riskier in the long run, an ARM which has an adjustable mortgage rate provides the potential homeowner with the opportunity to get into a home or buy more home than they may have been able to with a fixed rate mortgage. Instead of having to wait to build up a larger down payment, the first time homeowner can have the chance to qualify for a loan earlier. However, with an adjustable mortgage rate, the long term cost of the home may be higher.

Interest rates are affected by many economic factors including Wall Street. While the rate you see is usually based on the Fed rate, or the amount of interest the government charges banks to borrow money, there are factors such as introductory rates and other perks that may give you a better interest rate for a short time. While a fixed rate may give you a lower overall payoff, having an adjustable rate may give you the opportunity to get a good mortgage rate and get into a home that you may not get any other way.

In determining just how much many can afford when it comes time to buy a home, the fluctuation of mortgage rates can play a big role. To help you get in the home of your dreams, Mortgage101 can help you find the lowest mortgage interest rates from hundreds of companies.