Differences between adjustable and fixed rate loans

With a fixed-rate loan, your monthly payment doesn't change for the life of your loan. The portion that goes to principal (the loan amount) will increase, however, your interest payment will go down in the same amount. Your property taxes increase, or rarely, decrease, and your insurance rates might vary as well. For the most part payments for your fixed-rate loan will increase very little.

At the beginning of a a fixed-rate mortgage loan, the majority your payment goes toward interest. The amount paid toward your principal amount goes up gradually each month.

You might choose a fixed-rate loan in order to lock in a low interest rate. Borrowers select these types of loans when interest rates are low and they want to lock in at this low rate. For homeowners who have an ARM now, refinancing into a fixed-rate loan can offer more monthly payment stability. If you have an Adjustable Rate Mortgage (ARM) now, we'll be glad to help you lock in a fixed-rate at the best rate currently available. Call Firelight Mortgage Consultants at 7209331025 to discuss your situation with one of our professionals.

There are many types of Adjustable Rate Mortgages. ARMs are generally adjusted twice a year, based on various indexes.

The majority of Adjustable Rate Mortgages are capped, which means they won't go up over a specified amount in a given period of time. Some ARMs won't increase more than 2% per year, regardless of the underlying interest rate. Sometimes an ARM features a "payment cap" that guarantees your payment won't go above a fixed amount in a given year. The majority of ARMs also cap your interest rate over the duration of the loan period.

ARMs most often feature their lowest, most attractive rates toward the start. They guarantee the lower interest rate from a month to ten years. You've probably read about 5/1 or 3/1 ARMs. For these loans, the initial rate is set for three or five years. It then adjusts every year. These loans are fixed for 3 or 5 years, then they adjust. These loans are often best for borrowers who anticipate moving in three or five years. These types of ARMs most benefit people who will move before the loan adjusts.

You might choose an Adjustable Rate Mortgage to take advantage of a lower introductory interest rate and plan on moving, refinancing or absorbing the higher rate after the introductory rate expires. ARMs can be risky when housing prices go down because homeowners can get stuck with rates that go up if they can't sell their home or refinance with a lower property value.

Have questions about mortgage loans? Call us at 7209331025. It's our job to answer these questions and many others, so we're happy to help!