>> I don't understand anyone who takes a variable rate loan of any sort. The short of it is that, in some cases, it's MUCH cheaper. My last home mortgage was a 10:1 ARM (fixed for 10 years, then adjustable for the last 5 years) and I compared it against a fixed rate 30 year. The 10:1 would be paid off in 15 years with roughly 1/3rd the interest penalty if paid on schedule. The monthly cost was roughly the same (I think it was less than 1% different), but the Total out of pocket was significantly different. The part that you must understand is that after 10 years of paying on the mortgage, when it adjusts, it does so on the remaining balance and there is a Maximum it can adjust in both a 1 year and a 3 year timeframe. In my case, the resulting (maximum) change in payment was something like $12/month. I didn't make it to 10 years before the loan was paid off. Not all variable rate loans are the same though, you have to know what the fuck you're dealing with, but I've yet to meet a loan officer who wouldn't explain the differences. Mine was an "in-house" loan product of a small local bank (6 branches?) I think the more important thing is the mortgage as a percentage of your disposable income. 12% is Amazingly low, we aimed for 20~25%, every lender in the country will allow 33% and we've been told we could get as much as 45% (800+ credit scores). Actually, our real goal has been to keep total expenditures under 50% our income.