Fixed versus adjustable loans
A fixed-rate loan features a fixed payment over the life of your loan. The property taxes and homeowners insurance will go up over time, but generally, payments on fixed rate loans vary little.
When you first take out a fixed-rate loan, the majority your payment is applied to interest. This proportion reverses as the loan ages.
Borrowers might choose a fixed-rate loan to lock in a low rate. People select fixed-rate 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 with a fixed-rate loan can provide greater stability in monthly payments. If you currently have an Adjustable Rate Mortgage (ARM), we'd love to help you lock in a fixed-rate at a favorable rate. Call Nationwide Home Loans at 5626935048 to discuss how we can help.
Adjustable Rate Mortgages — ARMs, come in even more varieties. ARMs are normally adjusted every six months, based on various indexes.
Most ARMs are capped, so they won't increase over a specific amount in a given period. There may be a cap on how much your interest rate can go up in one period. For example: no more than two percent per 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 will not increase beyond a fixed amount over the course of a given year. Plus, the great majority of adjustable programs have a "lifetime cap" — this means that your rate will never exceed the capped amount.
ARMs most often have their lowest, most attractive rates at the beginning. They provide the lower interest rate from a month to ten years. You may hear people talking about "3/1 ARMs" or "5/1 ARMs". For 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 after the initial period. Loans like this are usually best for borrowers who anticipate moving within three or five years. These types of ARMs are best for people who plan to sell their house or refinance before the loan adjusts.
You might choose an ARM to get a very low introductory rate and count on moving, refinancing or absorbing the higher rate after the introductory rate goes up. ARMs are risky if property values decrease and borrowers cannot sell or refinance.
Have questions about mortgage loans? Call us at 5626935048. We answer questions about different types of loans every day.