Fixed versus adjustable rate loans

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A fixed-rate loan features a fixed payment amount over the life of the 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 increase very little.

At the beginning of a a fixed-rate mortgage loan, the majority the payment is applied to interest. As you pay , more of your payment is applied to principal.

You might choose a fixed-rate loan in order to lock in a low rate. Borrowers select fixed-rate loans because interest rates are low and they want to lock in the lower 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 can assist you in locking a fixed-rate at the best rate currently available. Call M.P.S. Mortgage Company at 7045420820 to discuss how we can help.

Adjustable Rate Mortgages — ARMs, come in many varieties. Generally, interest for ARMs are determined by an outside index. Some examples of outside indexes are: the 6-month CD rate, the one-year Treasury Security rate, the Federal Home Loan Bank's 11th District Cost of Funds Index (COFI), or others.

Most ARM programs feature a "cap" that protects you from sudden monthly payment increases. Some ARMs can't increase more than 2% per year, regardless of the underlying interest rate. Sometimes an ARM features a "payment cap" which ensures that your payment won't increase beyond a certain amount in a given year. Additionally, almost all ARMs have a "lifetime cap" — this means that the interest rate won't go over the cap amount.

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". For these loans, the initial rate is fixed for three or five years. It then adjusts every year. These kinds of loans are fixed for a number of years (3 or 5), then adjust. Loans like this are best for people who anticipate moving in three or five years. These types of adjustable rate loans are best for people who will sell their house or refinance before the loan adjusts.

Most people who choose ARMs choose them when they want to take advantage of lower introductory rates and do not plan to remain in the home longer than this introductory low-rate period. ARMs can be risky if property values go down and borrowers can't sell or refinance.

Have questions about mortgage loans? Call us at 7045420820. It's our job to answer these questions and many others, so we're happy to help!