Adjustable versus fixed loans
A fixed-rate loan features a fixed payment amount for the entire duration of the mortgage. Your property taxes may go up (or rarely, down), and your insurance rates might vary as well. For the most part payment amounts on your fixed-rate loan will be very stable.
When you first take out a fixed-rate loan, the majority the payment goes toward interest. As you pay , more of your payment goes toward principal.
Borrowers might choose a fixed-rate loan in order to lock in a low rate. People choose fixed-rate loans when interest rates are low and they wish to lock in at this lower rate. For homeowners who have an ARM now, refinancing into a fixed-rate loan can provide greater monthly payment stability. 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 Great Florida Lending, Inc at (786) 262-6486 to learn more.
There are many different types of Adjustable Rate Mortgages. ARMs usually adjust every six months, based on various indexes.
Most ARM programs feature a cap that protects borrowers from sudden increases in monthly payments. Some ARMs can't increase more than 2% per year, regardless of the underlying interest rate. Sometimes an ARM has a "payment cap" that ensures that your payment can't go above a certain amount in a given year. Most ARMs also cap your rate over the duration of the loan.
ARMs usually start out at a very low rate that usually increases over time. You've likely read about 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 types of loans are fixed for a certain number of years (3 or 5), then adjust after the initial period. These loans are usually best for people who expect to move within three or five years. These types of ARMs benefit borrowers who will move before the loan adjusts.
You might choose an Adjustable Rate Mortgage to get a lower introductory interest rate and count on moving, refinancing or absorbing the higher rate after the introductory rate goes up. ARMs are risky if property values go down and borrowers are unable to sell their home or refinance.
Have questions about mortgage loans? Call us at (786) 262-6486. It's our job to answer these questions and many others, so we're happy to help!