Differences between fixed and adjustable rate loans

With a fixed-rate loan, your payment remains the same for the entire duration of the mortgage. The longer you pay, the more of your payment goes toward principal. Your property taxes may go up (or rarely, down), and so might the homeowner's insurance in your monthly payment. But generally monthly payments for your fixed-rate loan will increase very little.

When you first take out a fixed-rate loan, the majority the payment is applied to interest. As you pay , more of your payment is applied to principal.

You can choose a fixed-rate loan in order to lock in a low rate. People choose these types of loans when interest rates are low and they want 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 help you lock in a fixed-rate at a good rate. Call Firelight Mortgage Consultants at 3032282254 to discuss your situation with one of our professionals.

There are many different types of Adjustable Rate Mortgages. ARMs usually adjust twice a year, based on various indexes.

Most programs feature a "cap" that protects you from sudden increases in monthly payments. There may be a cap on how much your interest rate can go up in one period. For example: no more than two percent per year, even though the underlying index increases by more than two percent. Your loan may have a "payment cap" that instead of capping the interest directly, caps the amount the monthly payment can increase in one period. Additionally, the great majority of ARMs feature a "lifetime cap" — the rate can't exceed the capped amount.

ARMs usually start out at a very low rate that usually increases as the loan ages. You may hear people talking 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 a certain number of years (3 or 5), then they adjust. These loans are often best for borrowers who anticipate moving in three or five years. These types of adjustable rate programs most benefit borrowers who plan to sell their house or refinance before the initial lock expires.

You might choose an ARM to get a very low introductory interest rate and plan on moving, refinancing or absorbing the higher rate after the initial rate expires. ARMs can be risky in a down market because homeowners can get stuck with increasing rates when they cannot sell or refinance with a lower property value.

Have questions about mortgage loans? Call us at 3032282254. It's our job to answer these questions and many others, so we're happy to help!

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Firelight Mortgage Consultants

Company NMLS#: 381658

7887 East Belleview Ave Ste 1100
Englewood, CO 80111