With a fixed-rate loan, your payment doesn't change for the life of your loan. The longer you pay, the more of your payment goes toward principal. Your property taxes may go up (or rarely, down), and so might the homeowner's insurance in your monthly payment. For the most part payment amounts on a fixed-rate mortgage will be very stable.
During the early amortization period of a fixed-rate loan, most of your monthly payment goes toward interest, and a significantly smaller percentage goes to principal. The amount applied to your principal amount increases up slowly each month.
Borrowers can choose a fixed-rate loan to lock in a low interest rate. People choose fixed-rate loans because interest rates are low and they wish to lock in the low rate. If you have an Adjustable Rate Mortgage (ARM) now, refinancing into a fixed-rate loan can offer more monthly payment stability. If you have an Adjustable Rate Mortgage (ARM) now, we can help you lock in a fixed-rate at the best rate currently available. Call 1st Mortgages at (877) 428-6847 to learn more.
Adjustable Rate Mortgages — ARMs, come in many varieties. ARMs are normally adjusted every six months, based on various indexes.
The majority of ARMs feature this cap, so they won't go up over a specified amount in a given period of time. Your ARM may feature a cap on how much your interest rate can increase in one period. For example: no more than a couple percent per year, even though the index the rate is based on goes up by more than two percent. Your loan may feature a "payment cap" that instead of capping the interest rate directly, caps the amount that the payment can increase in one period. Additionally, the great majority of adjustable programs feature a "lifetime cap" — the interest rate can't ever go over the cap amount.
ARMs usually start out at a very low rate that may increase as the loan ages. You may hear people talking about "3/1 ARMs" or "5/1 ARMs". For these loans, the initial rate is fixed for three or five years. It then adjusts every year. These loans are fixed for 3 or 5 years, then adjust after the initial period. Loans like this are best for people who expect to move within three or five years. These types of adjustable rate loans are best for people who will move before the loan adjusts.
You might choose an Adjustable Rate Mortgage to take advantage of a very low initial rate and count on moving, refinancing or absorbing the higher rate after the introductory rate goes up. ARMs are risky if property values decrease and borrowers can't sell their home or refinance their loan. Have questions about mortgage loans?
Call us at (877) 428-6847. We answer questions about different types of loans every day.
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Regulated by: the Division of Real Estate (CO) ∙ the State of Nebraska Department of Banking and Finance (NE) ∙ the Arizona Department of Financial Institutions (AZ) AZ# 0923361 ∙ the Office of the State Bank Commissioner (KS) Kansas Licensed Mortgage Company License No. MC0025226 ∙ the Wyoming Division of Banking (WY) WY# 2277. In Texas we are licensed and operate as 1st FFS, Inc. TX License #1230161. We do business in accordance with the Fair Housing Law and Equal Credit Opportunity Act. – NMLS# 109995