Since you know what your payment will be for the life of the loan, you can budget more easily.
No possibility of an interest rate change making your mortgage payment suddenly unaffordable.
No anxiety over interest rate fluctuations.
Advantages - ARM
Lower initial interest rate and therefore lower monthly payment.
If interest rate declines, your payment will also decline.
Easier to qualify for due to lower initial interest rate and payment amount.
Disadvantages Of Fixed And ARM Mortgages
Disadvantages - Fixed
More income needed to qualify because of higher initial mortgage rate.
If interest rates decrease appreciably, it will be necessary to refinance to get a lower payment.
Disadvantages - ARM
If interest rate increases, your payment will also increase.
A large increase in interest rates and payment could make your house unaffordable.
Common Loan Types: Conventional, FHA & VA
Conventional: A "traditional" mortgage, not directly insured by the Federal Government. Most conventional loans under $567,500 are administered through Fannie Mae or Freddie Mac (private corporations but regulated by the government). Those loans over that amount are designated "jumbo loans" and are funded by the private investment market.
FHA: Insured by (but not funded by) the Federal Housing Administration (FHA) a division of the U.S. Department of Housing and Urban Development (HUD), and designed for, in general, low- and middle-income borrowers and many first-time buyers. There are, however, limits (which vary from county to county) to the maximum loan amount. FHA loans have somewhat more relaxed qualifying standards and ratios than conventional loans and have the availability of both 15 and 30 year fixed as well as 1 year adjustable mortgages. One primary advantage of an FHA loan is the flexibility of making a very low down payment as low as 3% of the purchase price.
VA: For those qualified by military service, the Veterans Administration (VA) insures (but does not fund) 15 and 30 year fixed as well as 1 year adjustable mortgages with lower down payment requirements (as low as 0 down) and somewhat more lenient qualifying ratios.