Problem 6

We currently have the once-in-a-generation low interest rate environment, and the rates are likely to increase in the next decade. If you recently graduated from college and have a decent job, you have decided to purchase a relative expensive house to your income. Suppose that a bank offers you three types of mortgages: adjusted rate mortgage (ARM), fixed-rate mortgage with constant payments (FRM) and graduated payment mortgage (GPM). Which type of mortgage should you choose and why?