Differences between fixed and adjustable loans

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With a fixed-rate loan, your monthly payment remains the same for the entire duration of your mortgage. The amount that goes for your principal (the loan amount) goes up, but the amount you pay in interest will go down accordingly. Your property taxes may go up (or rarely, down), and your insurance rates might vary as well. For the most part monthly payments on a fixed-rate loan will be very stable.

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

Borrowers can choose a fixed-rate loan to lock in a low interest rate. Borrowers choose these types of loans when interest rates are low and they wish to lock in the lower rate. For homeowners who have an ARM now, refinancing with a fixed-rate loan can provide greater consistency in monthly payments. If you currently have an Adjustable Rate Mortgage (ARM), we'd love to assist you in locking a fixed-rate at a good rate. Call Steve Whittaker at 8007903317 for details.

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

Most ARM programs have a cap that protects borrowers from sudden monthly payment increases. Some ARMs can't adjust more than 2% per year, regardless of the underlying interest rate. Your loan may feature a "payment cap" that instead of capping the interest directly, caps the amount the payment can increase in a given period. Almost all ARMs also cap your rate over the duration of the loan period.

ARMs usually start at a very low rate that usually increases as the loan ages. You've probably heard of 5/1 or 3/1 ARMs. In these loans, the initial rate is set for three or five years. After this period it adjusts every year. These loans are fixed for a number of years (3 or 5), then adjust after the initial period. These loans are usually best for people who anticipate moving in three or five years. These types of ARMs most benefit people who plan to sell their house or refinance before the initial lock expires.

You might choose an ARM to get a lower introductory rate and count on moving, refinancing or absorbing the higher rate after the initial rate expires. ARMs are risky if property values decrease and borrowers cannot sell or refinance.

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