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The names are pretty much self explanatory but basically a fixed rate mortgage is a mortgage where the interest rate remains constant and an ARM is a mortgage where the interest rate varies.

The amount the interest rate varies is usually tied to an index such as the prime index. Additionally there are usually clauses which prevent the interest rate from rising or dropping dramatically during a specific period of time. The major advantage to this type of re-financing options is stability. Advantages of an ARM Option An ARM re-finance option is favorable in situations where the interest rate is expected to drop in the near future.

However, interest rates are tied to a number of different factors and may rise unexpectedly at any time despite the predictions by industry experts. Disadvantages of an ARM Option The most obvious disadvantage to an ARM re-financing option is that the interest rate may rise significantly and unexpectedly. This often comes in the form of a clause in the terms of the contract which prevents the interest rate from being raised or lowered by a certain percentage over a specific period of time.

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Source: (fixed home equity loan) http://www.fixedhomeequity.net/