Fixed versus adjustable loans
With a fixed-rate loan, your payment never changes for the life of your loan. The longer you pay, the more of your payment goes toward principal. Your property taxes increase, or rarely, decrease, and your insurance rates might vary as well. But generally monthly payments on your fixed-rate mortgage will be very stable.
Your first few years of payments on a fixed-rate loan are applied primarily to pay interest. As you pay , more of your payment goes toward principal.
You might choose a fixed-rate loan to lock in a low interest rate. Borrowers select fixed-rate loans when interest rates are low and they wish to lock in at the lower rate. For homeowners who have an ARM now, refinancing into a fixed-rate loan can provide more monthly payment stability. If you currently have an Adjustable Rate Mortgage (ARM), we'd love to assist you in locking a fixed-rate at the best rate currently available. Call Tenby J. Dahman at 3038627760 to discuss how we can help.
Adjustable Rate Mortgages — ARMs, come in a great number of varieties. ARMs are generally adjusted every six months, based on various indexes.
The majority of ARMs feature this cap, so they can't go up above a certain amount in a given period of time. Some ARMs can't increase more than two percent per year, regardless of the underlying interest rate. Sometimes an ARM features a "payment cap" which guarantees that your payment can't go above a certain amount over the course of a given year. The majority of ARMs also cap your rate over the duration of the loan.
ARMs most often feature their lowest rates toward the start. They usually guarantee that interest rate from a month to ten years. You may have heard about "3/1 ARMs" or "5/1 ARMs". For these loans, the introductory rate is set for three or five years. It then adjusts every year. These kinds of loans are fixed for 3 or 5 years, then adjust after the initial period. These loans are often best for borrowers who expect to move within three or five years. These types of ARMs most benefit borrowers who will move before the loan adjusts.
You might choose an Adjustable Rate Mortgage to get a lower initial rate and count on moving, refinancing or absorbing the higher rate after the initial rate expires. ARMs are risky if property values go down and borrowers cannot sell their home or refinance their loan.
Have questions about mortgage loans? Call us at 3038627760. It's our job to answer these questions and many others, so we're happy to help!