Recent changes in our economy have a lot of people wondering which kind of mortgage may be the best. Fixed rate mortgages and adjustable rate mortgages are types of loans which both have their benefits. This could mean that there may be no answer that fits everyone's needs. Here are some things, though, that should help you decide which one you need.

It should probably be said first that mortgages these days usually last about 10 years. That means that people often refinance in an effort to get better deals than what they originally obtained. In other words, the economy changed, and so did the opportunity to get a better deal. This certainly could apply today, as well, as long as you remember that a mortgage does not need to last forever - they can be upgraded, too, and often need to be.

A fixed rate mortgage is the standard mortgage. This is the type that there always was. With it, you get the loan principal amount, a flat interest rate for the life of the mortgage, and payments that never change. This is a steady thing that can be calculated into your monthly finances without having to entertain any guesswork or uncertainty.

The interest rates on a fixed rate mortgage are calculated by predicting what the interest rates could be in the future. There is a built-in inflation which is why it has a higher than current interest rate. It also means that your payments are higher than with an adjustable rate mortgage.

An adjustable rate mortgage, on the other hand, starts out as a fixed rate mortgage loan, and it has a lower payment, too. It does not have any inflation calculation added to the interest rate. There could be anywhere from 3 years up to about 11 years that your payments will be level - the same every month. After that, though, there is little ability to predict what will occur.

When the adjustable rate portion of your adjustable rate mortgage starts, your interest rate will reflect the current market rate at the time. This means you can probably expect quite a jump. There is, however, a cap in place so that it cannot jump too high in a single year - but there is still the possibility of a real surprise – each time there is a change in your rate.

The interest rate of your loans will be recalculated on a regular basis. It will either be once a year, or every month. This could be good - or bad. In good economic times, this could be great because your interest rates will be going down with it - or, at least staying the same. In bad times, however, it would be good not to have an adjustable rate mortgage - a fixed rate mortgage would definitely be better.

Adjustable rate mortgages have become recently popular because it could help someone get a larger home. The problem with this, though, is that if there should be a large increase in interest rates. This could put in a position where you cannot make the payments on your adjustable rate, and neither could you afford to refinance into a fixed rate mortgage. If you should try to wait on refinancing after the rates go up and you start missing payments, a damaged credit rating may raise your rates even more – making refinancing impossible.

The one safety feature is the level payment period that an adjustable rate mortgage has. If refinancing becomes necessary, then simply be sure to refinance before the level period runs out. As you can see, adjustable rate mortgages do require you to have at least one eye at all times on the market – but this is not necessary with a fixed rate mortgage. Fixed rate mortgages can be refinanced, too, if the market is good, and the interest rates become lower.