Fixed versus adjustable rate loans

With a fixed-rate loan, your monthly payment remains the same for the entire duration of the loan. The longer you pay, the more of your payment goes toward principal. Your property taxes increase, or rarely, decrease, and your insurance rates might vary as well. But generally payments on a fixed-rate loan will be very stable.

When you first take out a fixed-rate mortgage loan, most of the payment goes toward interest. The amount applied to principal goes up gradually every month.

You can choose a fixed-rate loan to lock in a low rate. Borrowers choose fixed-rate loans because interest rates are low and they want to lock in the lower rate. If you have an Adjustable Rate Mortgage (ARM) now, refinancing into 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 a favorable rate. Call Greystone Loans, Inc. at 9094671090 to learn more.

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

Most programs have a cap that protects borrowers from sudden monthly payment increases. Your ARM may feature a cap on interest rate variances over the course of a year. For example: no more than two percent per year, even if the underlying index increases by more than two percent. Sometimes an ARM has a "payment cap" that ensures your payment will not go above a fixed amount in a given year. Almost all ARMs also cap your rate over the life of the loan.

ARMs most often feature their lowest, most attractive rates at the beginning of the loan. They provide the lower interest rate for an initial period that varies greatly. You may hear people talking about "3/1 ARMs" or "5/1 ARMs". For these loans, the introductory rate is fixed for three or five years. It then adjusts every year. These loans are fixed for 3 or 5 years, then they adjust after the initial period. Loans like this are often best for people who expect to move within three or five years. These types of adjustable rate loans most benefit people who plan to move before the initial lock expires.

Most borrowers who choose ARMs do so when they want to take advantage of lower introductory rates and do not plan to stay in the house longer than this introductory low-rate period. ARMs can be risky when housing prices go down because homeowners can get stuck with increasing rates when they can't sell or refinance with a lower property value.

Have questions about mortgage loans? Call us at 9094671090. We answer questions about different types of loans every day.

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Greystone Loans, Inc.

Opening Doors to the American Dream since 1992

14726 Ramona Ave
Chino, CA 91710-5332