If you are thinking of availing a refinance for your home, then you may go in for any of the two alternatives that are available. The two types are adjustable rate mortgage (ARM) and the fixed rate mortgage loan. As choosing a fixed rate mortgage refinancing program or adjustable rate mortgage refinancing program is purely based on the requirement of the homeowner, he alone can take the right decision.

The fixed rate mortgage has a rate of interest that is coherent for the complete term of the loan without any change in it. For example the rate for a 30 years home loan will not change till the close of the term or a refinance for the mortgage whichever is applicable. An adjustable rate mortgage (ARM) will have a fixed interest term generally 3 - 5 years.When the fixed interest rate period expires the interest can then adjust month-to-month based on current interest rates. Because of this, the monthly mortgage payments can fluctuate. If interest rates change substantially the home loan can become unaffordable. This ARM is suitable only to the homeowners that are planning to opt for refinancing of their home loan at the end of the fixed term of the loan.

The fixed rate home loans are more constant than any other ones. The better the credit rating a borrower has when the loan is obtained, the more favorable the fixed interest rate will be. Other factors that determine the interest rate are job stability, income to debt ratio, and the equity in a home. The predictable monthly mortgage expense that fixed rate mortgage refinancing brings make it the most popular program.

The Fixed rate mortgages are the most ideal ones for a homeowner that are not willing to either sell or refinance their home loan as they are aware of the fixed amount they need to pay. Due to the monthly amount being fixed it makes it very convenient for the homeowners in the long term.

The fixed rate mortgage does have some shortcomings as well. For one, the interest rate is generally higher than the initial interest rate of an ARM. It is common for an ARM to have an interest rate between .5% and 1% lower than a fixed rate home loan. There is also a likelihood of the interest rates coming down after taking the loan. With this the homeowner has to bear a higher rate of interest than what is prevalent in the market. While the payment remains the same they would have paid a lower amount with the lower interest.

The credit history is a very important determinant for the interest rates. Hence in the usual cases the ARM rate is preferred over the fixed rate of interest by the ones having negative credit rating due to low initial payment that is required.