Adjustable versus fixed rate loans

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With a fixed-rate loan, your monthly payment doesn't change for the entire duration of the mortgage. The portion of the payment allocated to principal (the amount you borrowed) increases, but the amount you pay in interest will go down in the same amount. The property taxes and homeowners insurance which are almost always part of the payment will increase over time, but in general, payment amounts on fixed rate loans don't increase much.

At the beginning of a a fixed-rate mortgage loan, the majority your payment is applied to interest. This proportion gradually reverses as the loan ages.

Borrowers might choose a fixed-rate loan to lock in a low interest rate. People select fixed-rate loans when interest rates are low and they want to lock in at the lower rate. For homeowners who have an ARM now, refinancing with a fixed-rate loan can offer greater consistency in monthly payments. If you currently have an Adjustable Rate Mortgage (ARM), we'll be glad to help you lock in a fixed-rate at the best rate currently available. Call US Financial Mortgage Group at 5596747669 to learn more.

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

The majority of ARMs are capped, which means they won't increase over a specified amount in a given period. Some ARMs can't increase more than two percent per year, regardless of the underlying interest rate. Sometimes an ARM features a "payment cap" that ensures that your payment can't increase beyond a fixed amount in a given year. The majority of ARMs also cap your interest rate over the life of the loan.

ARMs usually start out at a very low rate that usually increases as the loan ages. You may have heard about "3/1 ARMs" or "5/1 ARMs". In these loans, the initial 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. These loans are best for people who expect to move within three or five years. These types of adjustable rate loans most benefit borrowers who will sell their house or refinance before the loan adjusts.

You might choose an ARM to get a very low introductory rate and count on moving, refinancing or simply absorbing the higher rate after the introductory rate goes up. ARMs can be risky when housing prices go down because homeowners could be stuck with rates that go up when they can't sell or refinance at the lower property value.

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