Fixed versus adjustable loans

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

At the beginning of a a fixed-rate loan, the majority your payment is applied to interest. As you pay on the loan, more of your payment is applied to principal.

Borrowers might choose a fixed-rate loan in order 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 low rate. For homeowners who have an ARM now, refinancing into a fixed-rate loan can offer greater consistency in monthly payments. If you currently have an Adjustable Rate Mortgage (ARM), we can assist you in locking a fixed-rate at a good rate. Call Firelight Mortgage Consultants at 3032282254 to discuss how we can help.

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, so they won't go up over a specific amount in a given period of time. Some ARMs can't increase more than 2% per year, regardless of the underlying interest rate. Your loan may have a "payment cap" that instead of capping the interest directly, caps the amount your payment can go up in a given period. Additionally, almost all ARMs have a "lifetime cap" — this cap means that your interest rate will never go over the capped amount.

ARMs most often feature their lowest rates at the start. They usually provide the lower rate for an initial period that varies greatly. You may have heard about "3/1 ARMs" or "5/1 ARMs". In these loans, the initial rate is fixed for three or five years. After this period it adjusts every year. These kinds of loans are fixed for a number of years (3 or 5), then they adjust after the initial period. These loans are usually best for borrowers who expect to move within three or five years. These types of ARMs benefit borrowers who will move before the loan adjusts.

Most borrowers who choose ARMs choose them when they want to take advantage of lower introductory rates and don't plan to stay in the house longer than this initial low-rate period. ARMs can be risky in a down market because homeowners can get stuck with increasing rates if they cannot sell their home or refinance at the 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!