Differences between fixed and adjustable loans

A fixed-rate loan features the same payment for the entire duration of your mortgage. Your property taxes may go up (or rarely, down), and your insurance rates might vary as well. For the most part monthly payments on your fixed-rate mortgage will be very stable.

Your first few years of payments on a fixed-rate loan are applied mostly toward interest. This proportion gradually reverses itself as the loan ages.

You can choose a fixed-rate loan in order to lock in a low interest rate. People select these types of loans when interest rates are low and they wish to lock in this low rate. If you have an Adjustable Rate Mortgage (ARM) now, refinancing into a fixed-rate loan can offer more monthly payment stability. If you have an Adjustable Rate Mortgage (ARM) now, we can help you lock in a fixed-rate at a favorable rate. Call Mario Vega at 877-310-6200 to discuss your situation with one of our professionals.

Adjustable Rate Mortgages — ARMs, come in a great number of varieties. ARMs are normally adjusted twice a year, based on various indexes.

Most ARMs feature this cap, which means they won't go up over a specified amount in a given period of time. There may be a cap on interest rate variances over the course of a year. For example: no more than a couple percent per year, even if the underlying index goes up by more than two percent. Sometimes an ARM features a "payment cap" which guarantees your payment can't increase beyond a fixed amount over the course of a given year. Most ARMs also cap your interest rate over the duration of the loan.

ARMs most often feature the lowest rates at the beginning of the loan. They guarantee that interest rate for an initial period that varies greatly. You've probably heard of 5/1 or 3/1 ARMs. For these loans, the initial rate is set for three or five years. It then adjusts every year. These kinds of loans are fixed for a certain number of years (3 or 5), then adjust after the initial period. These loans are usually best for borrowers who anticipate moving within three or five years. These types of ARMs are best for borrowers who plan to move before the initial lock expires.

You might choose an ARM to get a lower initial rate and plan on moving, refinancing or simply 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 877-310-6200. We answer questions about different types of loans every day.

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