While there are many different types of residential real estate mortgages, fixed rate mortgages and adjustable rate mortgages (ARMs) are the most common.
• Fixed rate residential real estate mortgages: Fixed-rate mortgages set your interest rate prior to closing on your home and the rate does not change for the term of the loan. Many banks allow you to lock in a favorable interest rate several months prior to closing. If you expect rates to rise, you may want to lock in a rate even earlier — usually for a fee based on a percentage of a point (1 point typically equals 1% of your loan).
• Adjustable rate residential real estate mortgages: An adjustable rate mortgage (ARM) has a lower initial interest rate than fixed-rate mortgages, but the rate will vary throughout the term of the loan. The bank can raise your rate in accordance with a rise in interest rates with an adjustment period determining the frequency of your rate change. ARMs generally have an interest rate cap, with yearly and/or lifetime maximums.
