Fixed versus adjustable loans

A fixed-rate loan features the same payment over the life of your loan. Your property taxes increase, or rarely, decrease, and your insurance rates might vary as well. But generally monthly payments on your fixed-rate mortgage will be very stable.

Your first few years of payments on a fixed-rate loan are applied mostly to pay interest. The amount paid toward your principal amount increases up slowly each month.

Borrowers can choose a fixed-rate loan to lock in a low interest rate. Borrowers select these types of loans because interest rates are low and they want to lock in the low rate. For homeowners who have an ARM now, refinancing with a fixed-rate loan can offer greater 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 MidTowne Mortgage at 4787462063 for details.

Adjustable Rate Mortgages — ARMs, come in a great number of varieties. ARMs are normally adjusted twice a year, based on various indexes.

Most ARM programs feature a "cap" that protects you from sudden monthly payment increases. Some ARMs can't adjust more than two percent per year, regardless of the underlying interest rate. Sometimes an ARM has a "payment cap" which ensures that your payment will not increase beyond a fixed amount in a given year. The majority of ARMs also cap your rate over the duration of the loan.

ARMs most often feature their lowest, most attractive rates toward the start of the loan. They guarantee that rate from a month to ten years. You've probably read about 5/1 or 3/1 ARMs. For these loans, the introductory 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 they adjust. These loans are usually best for borrowers who anticipate moving in three or five years. These types of ARMs are best for borrowers who plan to move before the initial lock expires.

Most people who choose ARMs do so because they want to take advantage of lower introductory rates and don't plan on staying in the house longer than this introductory low-rate period. ARMs can be risky when property values go down and borrowers are unable to sell their home or refinance.

Have questions about mortgage loans? Call us at 4787462063. We answer questions about different types of loans every day.

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