Adjustable versus fixed loans

A fixed-rate loan features a fixed payment over the life of the loan. Your property taxes may go up (or rarely, down), and your insurance rates might vary as well. For the most part monthly payments for a fixed-rate loan will be very stable.

Your first few years of payments on a fixed-rate loan go primarily toward interest. The amount paid toward principal increases up slowly each month.

Borrowers can choose a fixed-rate loan in order to lock in a low rate. Borrowers choose fixed-rate loans because interest rates are low and they want to lock in this 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 currently have an Adjustable Rate Mortgage (ARM), we can help you lock in a fixed-rate at a favorable rate. Call Firelight Mortgage Consultants at 7209331025 to discuss how we can help.

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

The majority of Adjustable Rate Mortgages feature this cap, so they can't go up over a certain amount in a given period. Your ARM may feature a cap on how much your interest rate can increase in one period. For example: no more than a couple percent a year, even if the index the rate is based on goes up by more than two percent. Sometimes an ARM has a "payment cap" which ensures your payment will not increase beyond a certain amount over the course of a given year. The majority of ARMs also cap your interest rate over the duration of the loan period.

ARMs most often have their lowest, most attractive rates at the start of the loan. They guarantee that interest rate from a month to ten years. You may hear people talking about "3/1 ARMs" or "5/1 ARMs". In these loans, the introductory rate is set for three or five years. It then adjusts every year. These loans are fixed for a certain number of years (3 or 5), then they adjust. These loans are often best for people who expect to move in three or five years. These types of adjustable rate loans benefit people who plan to sell their house or refinance before the loan adjusts.

Most borrowers who choose ARMs choose them because they want to get lower introductory rates and do not plan to stay in the house longer than the initial low-rate period. ARMs can be risky when property values decrease and borrowers cannot sell or refinance their loan.

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!