Fixed versus adjustable loans

A fixed-rate loan features the same payment amount for the entire duration of your mortgage. Your property taxes increase, or rarely, decrease, and your insurance rates might vary as well. But generally payment amounts for a fixed-rate mortgage will be very stable.

At the beginning of a a fixed-rate mortgage loan, the majority your payment is applied to interest. This proportion reverses itself as the loan ages.

Borrowers can choose a fixed-rate loan in order to lock in a low rate. Borrowers choose these types of loans when interest rates are low and they wish to lock in this lower rate. For homeowners who have an ARM now, refinancing with a fixed-rate loan can offer more monthly payment stability. If you currently have an Adjustable Rate Mortgage (ARM), we can help you lock in a fixed-rate at the best rate currently available. Call America's Money Source at (407) 898-7559 for details.

There are many different types of Adjustable Rate Mortgages. ARMs usually adjust every six months, based on various indexes.

Most ARMs are capped, so they won't go up above a specific amount in a given period. Your ARM may feature a cap on interest rate increases over the course of a year. For example: no more than two percent per year, even though the underlying index increases by more than two percent. Sometimes an ARM has a "payment cap" which ensures that your payment won't go above a fixed amount over the course of a given year. Plus, almost all ARM programs have a "lifetime cap" — the interest rate won't go over the cap percentage.

ARMs usually start out at a very low rate that usually increases as the loan ages. You've likely read about 5/1 or 3/1 ARMs. For these loans, the introductory rate is fixed for three or five years. After this period it adjusts every year. These kinds of loans are fixed for a certain number of years (3 or 5), then they adjust. Loans like this are usually best for borrowers who expect to move in three or five years. These types of adjustable rate programs are best for people who will sell their house or refinance before the initial lock expires.

Most borrowers who choose ARMs do so because they want to get lower introductory rates and don't plan on remaining in the house for any longer than the initial low-rate period. ARMs can be risky when property values go down and borrowers can't sell their home or refinance.

Have questions about mortgage loans? Call us at (407) 898-7559. It's our job to answer these questions and many others, so we're happy to help!

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