Fixed versus adjustable rate loans
A fixed-rate loan features the same payment for the entire duration of your mortgage. Your property taxes may go up (or rarely, down), and your insurance rates might vary as well. But generally payments on a fixed-rate loan will increase very little.
Early in a fixed-rate loan, most of your monthly payment goes toward interest, and a significantly smaller part goes to principal. This proportion gradually reverses as the loan ages.
You might choose a fixed-rate loan to lock in a low interest rate. People select fixed-rate loans when interest rates are low and they wish to lock in this lower rate. For homeowners who have an ARM now, refinancing with a fixed-rate loan can offer more consistency in monthly payments. If you currently have an Adjustable Rate Mortgage (ARM), we'll be glad to help you lock in a fixed-rate at a favorable rate. Call Executive Lending Group, LLC at (816) 525-8000 & (81 for details.
There are many different kinds of Adjustable Rate Mortgages. ARMs are normally adjusted every six months, based on various indexes.
Most ARM programs feature a "cap" that protects borrowers from sudden monthly payment increases. Some ARMs won't adjust more than 2% per year, regardless of the underlying interest rate. Your loan may have a "payment cap" that instead of capping the interest rate directly, caps the amount your monthly payment can go up in one period. In addition, almost all ARM programs have a "lifetime cap" — this means that your interest rate can never go over the cap percentage.
ARMs usually start at a very low rate that usually increases as the loan ages. You may hear people talking about "3/1 ARMs" or "5/1 ARMs". For these loans, the introductory rate is set for three or five years. It then adjusts every year. These kinds of loans are fixed for a certain number of years (3 or 5), then they adjust. Loans like this are usually best for people who expect to move within three or five years. These types of adjustable rate loans benefit people who plan to sell their house or refinance before the loan adjusts.
You might choose an ARM to take advantage of a lower introductory interest rate and plan on moving, refinancing or simply absorbing the higher rate after the initial rate expires. ARMs can be risky when property values decrease and borrowers cannot sell their home or refinance their loan.
Have questions about mortgage loans? Call us at (816) 525-8000 & (81. It's our job to answer these questions and many others, so we're happy to help!
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