Differences between fixed and adjustable rate loans
With a fixed-rate loan, your payment never changes for the entire duration of your mortgage. The longer you pay, the more of your payment goes toward principal. Your property taxes may go up (or rarely, down), and your insurance rates might vary as well. But generally monthly payments on your fixed-rate mortgage will increase very little.
Your first few years of payments on a fixed-rate loan go primarily to pay interest. This proportion reverses as the loan ages.
Borrowers can choose a fixed-rate loan to lock in a low rate. People select fixed-rate 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 offer greater monthly payment stability. If you currently have an Adjustable Rate Mortgage (ARM), we'll be glad to help you lock in a fixed-rate at the best rate currently available. Call Executive Lending Group, LLC at (816) 525-8000 & (81 for details.
There are many different types of Adjustable Rate Mortgages. ARMs are normally adjusted twice a year, based on various indexes.
The majority of Adjustable Rate Mortgages are capped, which means they won't increase above a certain amount in a given period. Your ARM may feature a cap on interest rate increases over the course of a year. For example: no more than two percent a year, even if the index the rate is based on increases by more than two percent. Your loan may have a "payment cap" that instead of capping the interest rate directly, caps the amount the monthly payment can increase in a given period. Almost all ARMs also cap your rate over the life of the loan.
ARMs most often have their lowest, most attractive rates toward the beginning of the loan. They usually provide that rate for an initial period that varies greatly. 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. It then adjusts every year. These loans are fixed for 3 or 5 years, then they adjust after the initial period. Loans like this are often best for borrowers who expect to move within three or five years. These types of ARMs most benefit borrowers who will move 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 remain in the home longer than the introductory low-rate period. ARMs can be risky when property values go down and borrowers are unable to sell or refinance.
Have questions about mortgage loans? Call us at (816) 525-8000 & (81. We answer questions about different types of loans every day.
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