Fixed versus adjustable rate loans

A fixed-rate loan features the same payment for the entire duration of the loan. The property taxes and homeowners insurance will go up over time, but for the most part, payment amounts on these types of loans change little over the life of the loan.

During the early amortization period of a fixed-rate loan, most of your monthly payment pays interest, and a much smaller part toward principal. This proportion gradually reverses itself as the loan ages.

Borrowers can choose a fixed-rate loan to lock in a low rate. People choose these types of loans when interest rates are low and they wish to lock in the low rate. If you have an Adjustable Rate Mortgage (ARM) now, refinancing into a fixed-rate loan can provide greater stability in monthly payments. 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 New Millennium Mortgage Co. NMLS: 331173 at (941) 366-5800 to discuss your situation with one of our professionals.

There are many kinds of Adjustable Rate Mortgages. ARMs usually adjust twice a year, based on various indexes.

The majority of ARMs are capped, which means they won't go up over a certain amount in a given period. Some ARMs can't adjust more than two percent per year, regardless of the underlying interest rate. Sometimes an ARM features a "payment cap" that ensures your payment won't increase beyond a certain amount in a given year. Most ARMs also cap your rate over the duration of the loan period.

ARMs usually start out at a very low rate that may increase over time. You may have heard about "3/1 ARMs" or "5/1 ARMs". In these loans, the initial rate is set for three or five years. After this period it adjusts every year. These loans are fixed for 3 or 5 years, then adjust after the initial period. These loans are best for people who anticipate moving in three or five years. These types of adjustable rate programs benefit people who plan to sell their house or refinance before the loan adjusts.

You might choose an Adjustable Rate Mortgage to get a very low introductory rate and count on moving, refinancing or simply absorbing the higher rate after the initial rate goes up. ARMs can be risky if property values decrease and borrowers can't sell their home or refinance their loan.

Have questions about mortgage loans? Call us at (941) 366-5800. We answer questions about different types of loans every day.

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