Differences between adjustable and fixed loans

A fixed-rate loan features the same payment over the life of your mortgage. The property tax and homeowners insurance which are almost always part of the payment will increase over time, but in general, payments on fixed rate loans don't increase much.

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

You can choose a fixed-rate loan to lock in a low interest rate. People select these types of loans when interest rates are low and they want to lock in the low rate. For homeowners who have an ARM now, refinancing with a fixed-rate loan can offer more monthly payment stability. If you have an Adjustable Rate Mortgage (ARM) now, we can help you lock in a fixed-rate at a good rate. Call Greystone Loans, Inc. at 9094671090 to discuss how we can help.

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

Most programs feature a "cap" that protects you from sudden increases in monthly payments. There may be a cap on interest rate increases 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 features a "payment cap" which ensures that your payment will not go above a certain amount over the course of a given year. Most ARMs also cap your interest rate over the life of the loan.

ARMs most often feature the lowest, most attractive rates at the beginning. They guarantee that 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 set for three or five years. It then adjusts every year. These loans are fixed for 3 or 5 years, then adjust after the initial period. Loans like this are often best for borrowers who expect to move in three or five years. These types of adjustable rate programs are best for borrowers who plan to move before the initial lock expires.

Most people who choose ARMs do so when they want to get lower introductory rates and don't plan on remaining in the home longer than the initial low-rate period. ARMs can be risky when housing prices go down because homeowners could be stuck with increasing rates when they cannot sell their home or refinance at the lower property value.

Have questions about mortgage loans? Call us at 9094671090. It's our job to answer these questions and many others, so we're happy to help!