Differences between adjustable and fixed loans

A fixed-rate loan features the same payment amount for the entire duration of your loan. Your property taxes increase, or rarely, decrease, and your insurance rates might vary as well. But generally payments for a fixed-rate loan will be very stable.

During the early amortization period of a fixed-rate loan, most of your payment goes toward interest, and a much smaller part goes to principal. That reverses as the loan ages.

Borrowers can choose a fixed-rate loan to lock in a low rate. Borrowers choose these types of loans when interest rates are low and they wish to lock in this low 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 help you lock in a fixed-rate at the best rate currently available. Call VSI Home Lending at 2603382561 for details.

Adjustable Rate Mortgages — ARMs, come in even more varieties. ARMs are normally adjusted every six months, based on various indexes.

Most ARMs feature this cap, so they won't go up over a specific amount in a given period of time. Your ARM may feature a cap on how much your interest rate can increase in one period. For example: no more than two percent a year, even if the index the rate is based on goes up by more than two percent. Your loan may feature a "payment cap" that instead of capping the interest directly, caps the amount the monthly payment can go up in one period. Most ARMs also cap your interest rate over the duration of the loan period.

ARMs usually start at a very low rate that usually increases as the loan ages. You've probably heard of 5/1 or 3/1 ARMs. In these loans, the introductory rate is set for three or five years. It then adjusts every year. These types of loans are fixed for 3 or 5 years, then adjust. These loans are usually best for people who expect to move within three or five years. These types of ARMs 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 don't plan to remain in the home longer than the initial low-rate period. ARMs can be risky if property values go down and borrowers cannot sell or refinance.

Have questions about mortgage loans? Call us at 2603382561. It's our job to answer these questions and many others, so we're happy to help!

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