Differences between adjustable and fixed rate loans

A fixed-rate loan features the same payment for the entire duration of the mortgage. 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 change little over the life of the loan.

Early in a fixed-rate loan, most of your monthly payment goes toward interest, and a much smaller part toward principal. As you pay , more of your payment goes toward principal.

Borrowers might choose a fixed-rate loan in order to lock in a low rate. Borrowers choose fixed-rate loans when interest rates are low and they want to lock in at this lower rate. For homeowners who have an ARM now, refinancing with a fixed-rate loan can offer more monthly payment stability. 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 Metro Mortgage at 4054054054 to learn more.

Adjustable Rate Mortgages — ARMs, come in a great number of varieties. Generally, the interest rates for ARMs are based on a federal index. A few of these are: the 6-month CD rate, the 1 year Treasury Security rate, the Federal Home Loan Bank's 11th District Cost of Funds Index (COFI), or others.

Most programs feature a cap that protects borrowers from sudden increases in monthly payments. Some ARMs won't increase more than 2% per year, regardless of the underlying interest rate. Sometimes an ARM has a "payment cap" that guarantees your payment won't increase beyond a certain amount over the course of a given year. The majority of ARMs also cap your interest rate over the duration of the loan.

ARMs usually start out at a very low rate that usually increases as the loan ages. You may hear people talking 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 3 or 5 years, then adjust. Loans like this are best for borrowers who expect to move within three or five years. These types of ARMs benefit people who will move before the initial lock expires.

You might choose an ARM to take advantage of a very low initial interest rate and plan on moving, refinancing or absorbing the higher rate after the introductory rate goes up. ARMs can be risky when property values go down and borrowers are unable to sell or refinance their loan.

Have questions about mortgage loans? Call us at 4054054054. It's our job to answer these questions and many others, so we're happy to help!