Adjustable versus fixed loans

With a fixed-rate loan, your monthly payment remains the same for the life of the mortgage. The longer you pay, the more of your payment goes toward principal. The property taxes and homeowners insurance will go up over time, but in general, payments on these types of loans don't increase much.

Your first few years of payments on a fixed-rate loan are applied mostly toward interest. The amount applied to principal increases up gradually every month.

You might choose a fixed-rate loan to lock in a low interest rate. Borrowers choose fixed-rate loans when interest rates are low and they wish to lock in the low rate. If you have an Adjustable Rate Mortgage (ARM) now, refinancing into a fixed-rate loan can provide greater consistency in monthly payments. If you have an Adjustable Rate Mortgage (ARM) now, we can assist you in locking a fixed-rate at a favorable rate. Call Tenby J. Dahman at 3038627760 to discuss your situation with one of our professionals.

There are many different types of Adjustable Rate Mortgages. ARMs usually adjust every six months, based on various indexes.

The majority of ARMs feature this cap, which means they won't go up above a specified amount in a given period. There may be a cap on how much your interest rate can go up in one period. For example: no more than a couple percent per year, even though the underlying index goes up by more than two percent. Your loan may have a "payment cap" that instead of capping the interest rate directly, caps the amount that your monthly payment can increase in one period. Plus, the great majority of adjustable programs have a "lifetime cap" — this cap means that your rate won't exceed the capped amount.

ARMs most often feature the lowest rates toward the beginning. They usually guarantee that interest rate for an initial period that varies greatly. You may hear people talking about "3/1 ARMs" or "5/1 ARMs". For these loans, the introductory rate is set for three or five years. After this period it adjusts every year. These loans are fixed for 3 or 5 years, then adjust. Loans like this are best for people who anticipate moving within three or five years. These types of adjustable rate loans benefit people who will move before the initial lock expires.

Most borrowers who choose ARMs choose them when they want to get lower introductory rates and do not plan on remaining in the house longer than this introductory low-rate period. ARMs can be risky if property values go down and borrowers are unable to sell 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!