Adjustable versus fixed loans
With a fixed-rate loan, your monthly payment doesn't change for the entire duration of your loan. The longer you pay, the more of your payment goes toward principal. The property tax and homeowners insurance will increase over time, but generally, payment amounts on fixed rate loans vary little.
At the beginning of a a fixed-rate loan, the majority the payment goes toward interest. As you pay , more of your payment is applied to principal.
You might choose a fixed-rate loan in order to lock in a low rate. Borrowers select these types of loans because interest rates are low and they want to lock in this low rate. For homeowners who have an ARM now, refinancing with a fixed-rate loan can provide more monthly payment stability. If you have an Adjustable Rate Mortgage (ARM) now, we'd love to assist you in locking a fixed-rate at the best rate currently available. Call Triumph Mortgage Inc at 8327302000 for details.
There are many different types of Adjustable Rate Mortgages. ARMs usually adjust twice a year, based on various indexes.
Most ARM programs have a cap that protects you from sudden increases in monthly payments. There may be a cap on how much your interest rate can go up in one period. For example: no more than a couple percent per year, even if the index the rate is based on goes up by more than two percent. Sometimes an ARM features a "payment cap" that ensures that your payment can't increase beyond a certain amount over the course of a given year. The majority of ARMs also cap your interest rate over the life of the loan.
ARMs usually start out at a very low rate that usually increases over time. You may hear people talking about "3/1 ARMs" or "5/1 ARMs". In 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 3 or 5 years, then adjust. These loans are often best for people who expect to move in three or five years. These types of adjustable rate loans most benefit borrowers who plan to sell their house or refinance before the loan adjusts.
Most borrowers who choose ARMs choose them because they want to take advantage of lower introductory rates and do not plan to stay in the house longer than the initial low-rate period. ARMs are risky if property values go down and borrowers are unable to sell or refinance their loan.
Have questions about mortgage loans? Call us at 8327302000. We answer questions about different types of loans every day.