Differences between adjustable and fixed loans

A fixed-rate loan features a fixed payment for the entire duration of your mortgage. The property taxes and homeowners insurance which are almost always part of the payment will increase over time, but generally, payments on these types of loans don't increase much.

When you first take out a fixed-rate mortgage loan, most of the payment goes toward interest. That gradually reverses itself as the loan ages.

Borrowers can choose a fixed-rate loan in order to lock in a low rate. People choose these types of loans because interest rates are low and they wish to lock in at this low rate. If you have an Adjustable Rate Mortgage (ARM) now, refinancing into a fixed-rate loan can offer greater monthly payment stability. If you have an Adjustable Rate Mortgage (ARM) now, we'd love to assist you in locking a fixed-rate at the best rate currently available. Call Donald Stiefer at 5806959369 to learn more.

Adjustable Rate Mortgages — ARMs, come in even more varieties. ARMs are generally adjusted every six months, based on various indexes.

The majority of Adjustable Rate Mortgages feature this cap, which means they can't go up over a specific amount in a given period. Your ARM may feature a cap on interest rate variances over the course of a year. For example: no more than two percent per year, even if the underlying index goes up by more than two percent. Your loan may feature a "payment cap" that instead of capping the interest directly, caps the amount that your monthly payment can go up in a given period. In addition, almost all ARMs have a "lifetime cap" — your interest rate can't go over the capped amount.

ARMs most often feature their lowest rates toward the start of the loan. They provide that rate from a month to ten years. You may have heard about "3/1 ARMs" or "5/1 ARMs". In these loans, the initial rate is set for three or five years. It then adjusts every year. These types of loans are fixed for 3 or 5 years, then adjust after the initial period. These loans are best for borrowers who anticipate moving in three or five years. These types of adjustable rate loans benefit borrowers who will move before the loan adjusts.

Most borrowers who choose ARMs do so because they want to get lower introductory rates and don't plan to remain in the home longer than the initial low-rate period. ARMs can be risky if property values go down and borrowers can't sell or refinance.

Have questions about mortgage loans? Call us at 5806959369. It's our job to answer these questions and many others, so we're happy to help!