Differences between fixed and adjustable rate loans

With a fixed-rate loan, your monthly payment remains the same for the life of the loan. The longer you pay, the more of your payment goes toward principal. The property taxes and homeowners insurance which are almost always part of the payment will go up over time, but in general, payments on these types of loans don't increase much.

When you first take out a fixed-rate loan, the majority the payment is applied to interest. That reverses as the loan ages.

Borrowers can choose a fixed-rate loan to lock in a low interest rate. Borrowers choose fixed-rate loans when interest rates are low and they want to lock in at this lower rate. If you have an Adjustable Rate Mortgage (ARM) now, refinancing with a fixed-rate loan can offer greater monthly payment stability. If you currently have an Adjustable Rate Mortgage (ARM), we can assist you in locking a fixed-rate at a good rate. Call Todays Financing at 2057831113 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.

Most ARMs feature this cap, which means they won't go up over a specific 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 increase beyond a fixed amount over the course of a given year. Plus, almost all ARMs have a "lifetime cap" — the interest rate won't exceed the capped amount.

ARMs most often have their lowest rates toward the start. They provide the lower interest rate for an initial period that varies greatly. You've probably heard of 5/1 or 3/1 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 3 or 5 years, then adjust. These loans are best for borrowers who expect to move in three or five years. These types of adjustable rate programs benefit borrowers who plan to sell their house or refinance before the initial lock expires.

Most people who choose ARMs do so when they want to get lower introductory rates and do not plan to stay in the home for any longer than this initial low-rate period. ARMs can be risky when housing prices go down because homeowners can get stuck with rates that go up if they cannot sell or refinance at the lower property value.

Have questions about mortgage loans? Call us at 2057831113. It's our job to answer these questions and many others, so we're happy to help!