Fixed versus adjustable loans

A fixed-rate loan features a fixed payment amount over the life of the mortgage. Your property taxes may go up (or rarely, down), and your insurance rates might vary as well. For the most part monthly payments for a fixed-rate mortgage will increase very little.

During the early amortization period of a fixed-rate loan, a large percentage of your monthly payment pays interest, and a significantly smaller percentage toward principal. This proportion reverses itself as the loan ages.

You might choose a fixed-rate loan in order to lock in a low interest rate. People choose these types of loans because interest rates are low and they wish to lock in this low rate. For homeowners who have an ARM now, refinancing into a fixed-rate loan can provide greater monthly payment stability. If you have an Adjustable Rate Mortgage (ARM) now, we can assist you in locking a fixed-rate at a good rate. Call Bright Vision Mortgage at (904) 342-3622 for details.

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

Most programs have a cap that protects borrowers from sudden monthly payment increases. Some ARMs won't increase more than two percent per year, regardless of the underlying interest rate. Your loan may feature a "payment cap" that instead of capping the interest rate directly, caps the amount that the monthly payment can go up in one period. In addition, almost all adjustable programs feature a "lifetime cap" — the interest rate can't ever go over the capped amount.

ARMs most often feature the lowest rates toward the beginning of the loan. They usually guarantee that rate from a month to ten years. You've probably read about 5/1 or 3/1 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 after the initial period. These loans are usually best for people who expect to move in three or five years. These types of ARMs most benefit people who plan to sell their house or refinance before the loan adjusts.

Most people who choose ARMs do so when they want to get lower introductory rates and don't plan to stay in the home longer than the introductory low-rate period. ARMs can be risky when housing prices go down because homeowners can get stuck with rates that go up if they can't sell their home or refinance with a lower property value.

Have questions about mortgage loans? Call us at (904) 342-3622. We answer questions about different types of loans every day.

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