Differences between adjustable and fixed loans

With a fixed-rate loan, your monthly payment doesn't change for the entire duration of your loan. The portion of the payment that goes to principal (the loan amount) will increase, but your interest payment will decrease accordingly. Your property taxes increase, or rarely, decrease, and so might the homeowner's insurance in your monthly payment. But generally monthly payments on your fixed-rate loan will increase very little.

At the beginning of a a fixed-rate mortgage loan, most of the payment goes toward interest. This proportion reverses as the loan ages.

Borrowers can choose a fixed-rate loan to lock in a low interest rate. People select these types of loans when interest rates are low and they want to lock in at this lower rate. For homeowners who have an ARM now, refinancing with a fixed-rate loan can provide more consistency in monthly payments. If you currently have an Adjustable Rate Mortgage (ARM), we'll be glad to help you lock in a fixed-rate at the best rate currently available. Call Firelight Mortgage Consultants at 7209331025 for details.

Adjustable Rate Mortgages — ARMs, come in many varieties. ARMs usually adjust every six months, based on various indexes.

Most programs feature a "cap" that protects borrowers from sudden monthly payment increases. 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 rate directly, caps the amount that the payment can increase in a given period. Almost all ARMs also cap your rate over the life of the loan.

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 introductory rate is set for three or five years. After this period it adjusts every year. These loans are fixed for a certain number of years (3 or 5), then adjust after the initial period. These loans are often best for people who anticipate moving in three or five years. These types of ARMs benefit people who plan to sell their house or refinance before the loan adjusts.

You might choose an ARM to get a very low initial interest rate and count on moving, refinancing or absorbing the higher rate after the initial rate expires. ARMs are 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!