Q. We have a dilemma. We have just signed a contract to buy our first house, and it looks as if we have waited too long. Interest rates for fixed 30-year mortgages are now much higher than a few months ago. A mortgage lender has advised us to get an adjustable- rate mortgage (ARM). We like the lower interest rate but do not understand how it works. What exactly is an ARM? Is a fixed-rate mortgage more favorable than an ARM?

If you plan to stay in the house for a period of time, you should look carefully at the various adjustable rates on the market. The spread between the fixed 30 and the one-year adjustable appears significant enough to give the latter serious consideration. On the other hand, if you are concerned that your rate (and your monthly mortgage payment) will be increasing on a yearly basis, you could also look at the 7-23 ARM.

Most adjustable-rate mortgages are "written" for 30 years, but the interest rate is adjusted periodically. There are many variations on this adjustable-rate theme. There is a 7-23, where the rate is fixed for the first seven years and then adjusts annually for 23 more years. If the rate is adjusted after five or seven years, the initial rate will be lower than for a 30-year fixed-rate mortgage, but higher than an adjustable-rate mortgage that is adjusted every single year.