Adjustable versus fixed rate loans

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

Early in a fixed-rate loan, most of your monthly payment pays interest, and a significantly smaller part goes to principal. This proportion gradually reverses itself as the loan ages.

Borrowers can choose a fixed-rate loan to lock in a low rate. People select these types of loans when interest rates are low and they wish to lock in at this low rate. For homeowners who have an ARM now, refinancing into a fixed-rate loan can offer more consistency in monthly payments. If you have an Adjustable Rate Mortgage (ARM) now, we can assist you in locking a fixed-rate at the best rate currently available. Call Triumph Mortgage Inc at 8327302000 for details.

Adjustable Rate Mortgages — ARMs, as we called them above — come in many varieties. Generally, interest rates for ARMs are based on an outside index. A few of these are: the 6-month Certificate of Deposit (CD) rate, the one-year Treasury Security rate, the Federal Home Loan Bank's 11th District Cost of Funds Index (COFI), or others.

Most Adjustable Rate Mortgages feature this cap, which means they won't increase above a specified amount in a given period of time. Some ARMs can't increase more than 2% per year, regardless of the underlying interest rate. Sometimes an ARM has a "payment cap" which ensures your payment can't increase beyond a certain amount over the course of a given year. In addition, almost all ARM programs feature a "lifetime cap" — your interest rate can never exceed the capped percentage.

ARMs usually start at a very low rate that usually increases over time. You've likely heard of 5/1 or 3/1 ARMs. For these loans, the initial rate is fixed for three or five years. After this period it adjusts every year. These types of loans are fixed for a certain number of years (3 or 5), then adjust after the initial period. Loans like this are usually best for borrowers who anticipate moving in three or five years. These types of ARMs are best for people who will sell their house or refinance before the loan adjusts.

Most borrowers who choose ARMs choose them because they want to get lower introductory rates and don't plan to stay in the house longer than the introductory low-rate period. ARMs are risky when property values decrease and borrowers can't sell their home or refinance their loan.

Have questions about mortgage loans? Call us at 8327302000. It's our job to answer these questions and many others, so we're happy to help!

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