Fixed versus adjustable loans

A fixed-rate loan features the same payment amount over the life of the mortgage. The property taxes and homeowners insurance will go up over time, but in general, payments on these types of loans vary little.

When you first take out a fixed-rate loan, the majority your payment is applied to interest. As you pay on the loan, more of your payment goes toward principal.

You can choose a fixed-rate loan in order to lock in a low rate. People choose these types of loans because interest rates are low and they wish to lock in at this low rate. For homeowners who have an ARM now, refinancing with a fixed-rate loan can provide more stability in monthly payments. If you have an Adjustable Rate Mortgage (ARM) now, we'll be glad to assist you in locking a fixed-rate at the best rate currently available. Call Turnkey Mortgage Group - NMLS#70160
David Yeary, Mortgage Loan Originator NMLS#1837725 at 7133252099 to learn more.

Adjustable Rate Mortgages — ARMs, come in a great number of varieties. Generally, the interest for ARMs are based on a federal index. A few of these are: the 6-month Certificate of Deposit (CD) rate, the 1 year rate on Treasure Securities, the Federal Home Loan Bank's 11th District Cost of Funds Index (COFI), or others.

Most Adjustable Rate Mortgages are capped, so they won't go up above a certain amount in a given period. Some ARMs won't increase more than two percent per year, regardless of the underlying interest rate. Sometimes an ARM features a "payment cap" that ensures your payment can't go above a certain amount over the course of a given year. The majority of ARMs also cap your rate over the life of the loan period.

ARMs usually start out at a very low rate that usually increases over time. You've likely heard of 5/1 or 3/1 ARMs. In these loans, the initial rate is fixed for three or five years. It then adjusts every year. These kinds of loans are fixed for a number of years (3 or 5), then they adjust. These loans are usually best for borrowers who anticipate moving within three or five years. These types of adjustable rate loans benefit people who will sell their house or refinance before the loan adjusts.

Most people who choose ARMs do so when they want to get lower introductory rates and don't plan on remaining in the home for any longer than this introductory low-rate period. ARMs can be risky in a down market because homeowners can get stuck with increasing rates when they can't sell or refinance at the lower property value.

Have questions about mortgage loans? Call us at 7133252099. We answer questions about different types of loans every day.