Michael Holigan: An adjustable rate mortgage can seem a little scary. After all, the interest rate you pay on ARMs can fall, or they can rise. But there are some great reasons to get an ARM. ARMs are appealing because they offer a starting interest rate roughly one or two percentage points lower than most other loans. Say you have a hundred thousand dollar mortgage and you live in your home ten years. Comparing a fixed rate 7 3/4% interest loan to an adjustable rate loan that averages at six percent, you would likely save more than $17,000 in interest during those ten years. But remember that key word - adjustable. That's the gamble you take with an ARM. Your interest rate can decrease, or it can increase. The fluctuations are based on various economic indicators. When the economy is stable, ARMs are very popular. Many ARMs can rise no more than one or two percent a year and no more than 5 or 6% over the life of the loan. Let's figure the math. Say your 30-year, $100,0000 loan starts at 6%. If your rate eventually increases 5 percentage points, your monthly payments increases $352. But, in most cases an ARM will save you money over time because they don't go up each year. They go up and down, depending on the economy.

I'm Michael Holigan - About the House.