Adjustable versus fixed rate loans

A fixed-rate loan features a fixed payment amount for the entire duration of your mortgage. The property tax and homeowners insurance which are almost always part of the payment will increase over time, but for the most part, payment amounts on these types of loans vary little.

At the beginning of a a fixed-rate mortgage loan, most of the payment is applied to interest. The amount paid toward principal goes up gradually each month.

You might choose a fixed-rate loan in order to lock in a low rate. People select fixed-rate loans when interest rates are low and they wish to lock in at the lower rate. For homeowners who have an ARM now, refinancing into a fixed-rate loan can provide more monthly payment stability. If you have an Adjustable Rate Mortgage (ARM) now, we can help you lock in a fixed-rate at the best rate currently available. Call Homewithloan.com at 9727982110 to discuss how we can help.

There are many types of Adjustable Rate Mortgages. ARMs usually adjust twice a year, based on various indexes.

Most ARM programs feature a "cap" that protects borrowers from sudden monthly payment increases. Your ARM may feature a cap on how much your interest rate can increase in one period. For example: no more than a couple percent a year, even though the index the rate is based on goes up by more than two percent. Sometimes an ARM has a "payment cap" that ensures your payment won't increase beyond a certain amount in a given year. Plus, the great majority of adjustable programs have a "lifetime cap" — the rate can't go over the capped percentage.

ARMs usually start at a very low rate that usually increases over time. You may have heard about "3/1 ARMs" or "5/1 ARMs". In these loans, the initial rate is fixed for three or five years. After this period it adjusts every year. These loans are fixed for 3 or 5 years, then they adjust after the initial period. Loans like this are best for people who anticipate moving within three or five years. These types of ARMs are best for people who will sell their house or refinance before the loan adjusts.

Most people who choose ARMs choose them when they want to get lower introductory rates and do not plan to stay in the house for any longer than this introductory low-rate period. ARMs can be risky if property values go down and borrowers can't sell their home or refinance.

Have questions about mortgage loans? Call us at 9727982110. We answer questions about different types of loans every day.

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