One of the questions to consider when you’re buying a home is whether you want a fixed-rate or adjustable-rate mortgage (ARM).
With a fixed-rate mortgage, your payment remains the same for the duration of the loan.
An ARM is fixed for an initial period of time — three, five or seven years. Then it fluctuates based on market interest rates. The “caps” on your loan will indicate how much the mortgage rate can change after the initial fixed period.
The risk with an ARM is that the rate can go up after that fixed period. The advantage is that the rate during the fixed period is usually lower than it would be for a conventional loan.
So your best financing option depends largely on how long you intend to occupy your home.