Differences between adjustable and fixed loans

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A fixed-rate loan features the same payment for the entire duration of your loan. Your property taxes may go up (or rarely, down), and so might the homeowner's insurance in your monthly payment. But generally monthly payments for your fixed-rate loan will be very stable.

When you first take out a fixed-rate mortgage loan, the majority your payment goes toward interest. That gradually reverses itself as the loan ages.

You might choose a fixed-rate loan in order to lock in a low interest rate. Borrowers select these types of 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 have an Adjustable Rate Mortgage (ARM) now, we'd love to assist you in locking a fixed-rate at a good rate. Call clickformyloan.com at 269-282-1612 to learn more.

There are many types of Adjustable Rate Mortgages. ARMs usually adjust every six months, based on various indexes.

Most ARMs feature this cap, so they can't increase over a specific amount in a given period of time. There may be a cap on how much your interest rate can go up in one period. For example: no more than a couple percent a year, even if the underlying index increases by more than two percent. Your loan may have a "payment cap" that instead of capping the interest rate directly, caps the amount your monthly payment can increase in a given period. In addition, the great majority of ARMs have a "lifetime cap" — your rate can't exceed the capped percentage.

ARMs usually start at a very low rate that usually increases over time. You may hear people talking about "3/1 ARMs" or "5/1 ARMs". In these loans, the introductory rate is fixed for three or five years. It then adjusts every year. These loans are fixed for a number of years (3 or 5), then adjust. These loans are best for borrowers who anticipate moving within three or five years. These types of adjustable rate loans are best for borrowers who will sell their house or refinance before the initial lock expires.

Most people who choose ARMs choose them because they want to get lower introductory rates and don't plan on remaining in the home longer than this initial low-rate period. ARMs can be risky in a down market because homeowners can get stuck with increasing rates if they cannot sell or refinance at the lower property value.

Have questions about mortgage loans? Call us at 269-282-1612. We answer questions about different types of loans every day.