Michael Holigan: Jodi Harden got a great deal on her home loan. She got an Adjustable Rate Mortgage, or ARM. Unlike most other home loans the ARM's interest rate fluctuates. ARMs are appealing because they offer a starting interest rate much lower than most other loans.

Jodi Harden: I think a 30-year fixed was going around (at that time) 8% and I got a six and a half.

MH: For an example, say the current interest rate for a conventional loan is 8%. Adjustable rate mortgages typically start at 2% less. That means for this example an ARM would have an interest rate of 6%. Translation, $100,000 home with 5% down would have monthly payments of $697. An ARM's monthly payment would start at $570 - a savings of $127 each month. There is a limit, or payment cap, on how much your interest rate can rise. On a FHA loan, ARMs cannot rise more than 1% a year and a total of 5% over the life of the loan. On an ARM for a conventional loan those figures are 2% a year and 6% for the loan's life. The great thing about ARMs is they don't have to go up each year. If the economy goes down your adjustable interest rate can also go down. In most cases over the life of the loan you save more money with an ARM than you would with a fixed rate. Jodi's ARM is paying off. The lower interest rates allowed her to buy a bigger home in a better area for her son. It's an atmosphere young Cameron is really enjoying.

JH: And he likes it. He's in a stable environment now versus an apartment.

MH: Your local lender can give you more information about Adjustable Rate Mortgages.

I'm Michael Holigan - About the House.