Lets start with a fixed rate mortgage. This mortgage is by far the safest mortgage for most homeowners with rates as low as they are today. You never have to worry about your interest rate increasing your payments and as years go by you are paying down the principle on your mortgage. A fixed rate is key if you plan on staying in your home for years to come. You can always take out a second mortgage to payoff credit cards, get cash out or whatever your needs may be.

An adjustable rate mortgage in today's market is a good decision if you can not get a fixed rate mortgage at or below 7.5%. We all know that mortgage rates only have one way to go and that's up. If you plan on refinancing again in two years or more expect interest rates to be around 7% or higher. An adjustable rate mortgage gives you the ability to save a few bucks a month but also forces you to refinance that mortgage within a set amount of time.

An interest only mortgage only requires you to pay the interest, leaving the principle untouched. If you plan on making extra payments on your mortgage you may as well take a fixed rate mortgage which usually has a lower interest rate anyways and helps you avoid refinancing again if you decide not to make extra payments towards your interest only mortgage. Usually on an interest only mortgage after 5 or 10 years you have to start to pay principle anyways. If you are a procrastinator, you will see a significant increase in your mortgage payments when you have 25 or 20 years left to pay on the original balance of your mortgage from 5 or 10 years ago.

An option arm mortgage is more of a tool then anything. You have to be very careful with this loan or it can really bite you in the butt. This loan is for homeowners who can get a better return on their money by putting it in the stock market, IRAs or other investment opportunities. With the option arm you have 4 different options to pay each and every month, hints the name option arm. You can make a below interest only payment, an interest only payment, a 15 year adjustable rate mortgage payment or a 30 year adjustable rate mortgage payment. If you make the below interest only payment each month you will start to see your mortgage balance increase. In order for this to make any sense, the money that you save and invest needs to make up the difference of your mortgage increase.

If you are thinking about refinancing in today's market make sure you look at these options very carefully. I talk to people daily who never really understood what they were doing when they took out their interest only loan, all they cared about was how low the payment was. With the housing market slowing down as much as it has, paying down your principle may be the way to gain equity in your home for the next few years. There are many homeowners out there who owe what their house is worth and can only afford the interest only payment. Unless their income increases significantly they may find themselves between a rock and a hard spot.