Fixed versus adjustable rate loans

A fixed-rate loan features a fixed payment for the entire duration of your loan. Your property taxes increase, or rarely, decrease, and so might the homeowner's insurance in your monthly payment. For the most part payment amounts on your fixed-rate mortgage will be very stable.

Your first few years of payments on a fixed-rate loan are applied mostly toward interest. As you pay , more of your payment goes toward principal.

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 want to lock in at the low rate. For homeowners who have an ARM now, refinancing with a fixed-rate loan can provide more stability in monthly payments. If you currently have an Adjustable Rate Mortgage (ARM), we'll be glad to assist you in locking a fixed-rate at a favorable rate. Call Custom Lending Group at 7072522700 for details.

There are many different kinds of Adjustable Rate Mortgages. Generally, interest rates on ARMs are determined by a federal index. Some examples of outside indexes are: the 6-month Certificate of Deposit (CD) rate, the one-year rate on Treasure Securities, the Federal Home Loan Bank's 11th District Cost of Funds Index (COFI), or others.

Most ARM programs feature a cap that protects borrowers from sudden monthly payment increases. Some ARMs can't increase more than two percent per year, regardless of the underlying interest rate. Sometimes an ARM features a "payment cap" which guarantees your payment won't increase beyond a certain amount in a given year. Almost all ARMs also cap your interest rate over the life of the loan.

ARMs most often have their lowest, most attractive rates at the start. They usually provide that interest rate for an initial period that varies greatly. You've probably heard of 5/1 or 3/1 ARMs. In these loans, the introductory rate is set for three or five years. It then adjusts every year. These loans are fixed for a certain number of years (3 or 5), then they adjust after the initial period. These loans are best for people who anticipate moving within three or five years. These types of ARMs most benefit people who plan to move before the loan adjusts.

Most people who choose ARMs choose them when they want to get lower introductory rates and don't plan to remain in the house for any longer than the introductory low-rate period. ARMs can be risky when housing prices go down because homeowners could be stuck with increasing rates when they can't sell their home or refinance at the lower property value.

Have questions about mortgage loans? Call us at 7072522700. It's our job to answer these questions and many others, so we're happy to help!

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