Fixed versus adjustable rate loans
A fixed-rate loan features a fixed payment over the life of your loan. The property tax and homeowners insurance which are almost always part of the payment will increase over time, but generally, payment amounts on fixed rate loans don't increase much.
At the beginning of a a fixed-rate loan, most of the payment goes toward interest. As you pay , more of your payment goes toward principal.
Borrowers might choose a fixed-rate loan to lock in a low interest rate. Borrowers select fixed-rate loans because interest rates are low and they want to lock in this low rate. For homeowners who have an ARM now, refinancing into a fixed-rate loan can provide more stability 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 America's Money Source at 4078987559 to discuss how we can help.
There are many different types of Adjustable Rate Mortgages. ARMs usually adjust every six months, based on various indexes.
The majority of ARMs feature this cap, which means they won't go up above a specific amount in a given period of time. Some ARMs won't increase more than two percent per year, regardless of the underlying interest rate. Sometimes an ARM features a "payment cap" that guarantees that your payment can't go above a certain amount over the course of a given year. Almost all ARMs also cap your interest rate over the life of the loan period.
ARMs most often have the lowest rates at the start. They usually guarantee the lower rate for an initial period that varies greatly. You've probably read about 5/1 or 3/1 ARMs. In these loans, the introductory rate is fixed for three or five years. It then adjusts every year. These types of loans are fixed for 3 or 5 years, then they adjust. Loans like this are best for borrowers who anticipate moving in three or five years. These types of ARMs most benefit borrowers who plan to move before the initial lock expires.
You might choose an ARM to get a very low introductory rate and count on moving, refinancing or absorbing the higher rate after the initial rate goes up. ARMs can be risky when housing prices go down because homeowners could be stuck with rates that go up when they cannot sell their home or refinance with a lower property value.
Have questions about mortgage loans? Call us at 4078987559. We answer questions about different types of loans every day.