Differences between adjustable and fixed loans

A fixed-rate loan features a fixed payment amount over the life of your loan. Your property taxes increase, or rarely, decrease, and your insurance rates might vary as well. For the most part payment amounts on a fixed-rate loan will be very stable.

Your first few years of payments on a fixed-rate loan are applied mostly to pay interest. This proportion reverses as the loan ages.

You can choose a fixed-rate loan in order to lock in a low rate. People select these types of loans because interest rates are low and they wish to lock in at this lower rate. If you have an Adjustable Rate Mortgage (ARM) now, refinancing with a fixed-rate loan can offer more monthly payment stability. If you have an Adjustable Rate Mortgage (ARM) now, we'll be glad to help you lock in a fixed-rate at the best rate currently available. Call Billfish Mortgage at 941-584-4098 for details.

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

The majority of Adjustable Rate Mortgages feature this cap, which means they won't increase above a specified amount in a given period of time. There may be a cap on interest rate variances over the course of a year. For example: no more than a couple percent a year, even if 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 most often feature their lowest rates at the start. They usually guarantee the lower rate for an initial period that varies greatly. You may have heard about "3/1 ARMs" or "5/1 ARMs". For 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 they adjust. Loans like this are often best for borrowers who expect to move within three or five years. These types of ARMs benefit borrowers who plan to sell their house or refinance before the loan adjusts.

Most borrowers who choose ARMs choose them when they want to get lower introductory rates and don't plan on remaining in the house longer than this initial low-rate period. ARMs are risky when property values go down and borrowers cannot sell or refinance.

Have questions about mortgage loans? Call us at 941-584-4098. It's our job to answer these questions and many others, so we're happy to help!