Adjustable versus fixed rate loans

With a fixed-rate loan, your payment never changes for the life of the loan. The amount that goes for your principal (the loan amount) will increase, however, your interest payment will decrease in the same amount. Your property taxes may go up (or rarely, down), and your insurance rates might vary as well. But generally payments for your fixed-rate mortgage will be very stable.

During the early amortization period of a fixed-rate loan, a large percentage of your payment goes toward interest, and a significantly smaller part goes to principal. The amount applied to your principal amount increases up gradually each month.

Borrowers might choose a fixed-rate loan to lock in a low rate. Borrowers select fixed-rate loans when interest rates are low and they want to lock in the low rate. For homeowners who have an ARM now, refinancing into a fixed-rate loan can provide greater consistency 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 good rate. Call Bright Vision Mortgage at (904) 342-3622 to discuss your situation with one of our professionals.

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

Most ARM programs have a cap that protects you from sudden monthly payment increases. Your ARM may feature a cap on how much your interest rate can increase in one period. For example: no more than a couple percent per year, even though 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 payment can increase in one period. The majority of ARMs also cap your rate over the duration of the loan period.

ARMs usually start out at a very low rate that may increase as the loan ages. You've likely heard of 5/1 or 3/1 ARMs. For these loans, the introductory rate is fixed 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 often best for people who anticipate moving within three or five years. These types of adjustable rate loans are best for borrowers who plan to move before the loan adjusts.

You might choose an Adjustable Rate Mortgage to get a very low initial rate and count on moving, refinancing or simply absorbing the higher rate after the initial rate expires. ARMs can be risky if property values go down and borrowers can't sell or refinance.

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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