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There are many loan options open to those who want to refinance their current home loans. You may find yourself faced with the option of an ARM (adjustable rate mortgage) or a fixed rate loan. Which type you will choose depends on your personal situation and the expectations you have for your refinanced mortgage.

A fixed interest rate mortgage is just what it sounds like. This type of home loan has a set, unchanging interest rate for the entire term of the loan. Should you refinance your loan over a term of thirty years, the interest rates will not fluctuate over that thirty years unless you once again refinance. Other fixed rate mortgages may run for only a set number of years (perhaps one to ten years). After this, they become adjustable rate mortgages.

A fixed rate mortgage differs from an ARM in that the adjustable rate mortgage has an interest rate which fluctuates, depending on the state of the current market and financial trends. This means that the monthly payments on an ARM loans are subject to change. When the prevailing interest rate increases, so does the monthly payment on your ARM.

Borrowers seeking stability in their loan are most likely to benefit from a fixed interest rate mortgage. Those with good credit ratings will always be offered reasonable interest rates and terms on their loans. Those who have a stable, long-term career and want to be able to budget over the long term will choose a fixed rate loan over an ARM. The ARM might have a lower initial rate, but that rate is subject to change depending on the current market.

A fixed rate mortgage loan is among the safest type of loan you can take. From the very beginning, you know that you will be paying an amount which does not change over the term of the loan. This allows for more accurate budgeting, and no sudden surprises. Among the problems that one might encounter with a fixed interest rate mortgage loan is the difference between various interest rate. The fixed rate mortgage will always carry a higher interest rate than a similar adjustable rate loan. Bad credit histories prevent lenders from offering lower rates, and will increase the interest rates of loans available to you. This fact causes many to choose an adjustable rate mortgage over the fixed rate loan.

It is also wise to keep in mind that interest rates do sometimes drop dramatically. When this happens, people with a fixed rate loan can find themselves paying a much higher rate than others with adjustable rate mortgages. This is the biggest risk of a fixed interest rate mortgage loan. Other than this one risk, fixed interest rate refinancing has few risks, and provides long term stability to borrowers who use it.

Joshua Suffie is the expert behind the website Refinancing Right.

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