Finance with a fixed-rate loan, not an ARM

House on mortgage

The spread -- or difference in interest rates -- between fixed- and adjustable rate mortgages is much smaller than usual.

The average 30-year, fixed-rate loan only costs about a tenth-of-a-percentage-point more than the average five-year ARM.

(That's an adjustable-rate mortgage where the initial rate is fixed for five years and then can move up or down depending on the market over the remaining 25 years of the loan.)

As a result, initial monthly payments for an ARM is just $10 or so a month less than for the fixed-rate loan.

That isn't enough to risk higher rates, and higher mortgage payments, five years from now.

Don't fall for ARMs that promise ridiculously low initial rates -- 5.5% or less.

They often come with big fees and terms that allow rates and payments to start rising within the first month or two of taking out the loan.

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