Adjustable versus fixed rate loans

With a fixed-rate loan, your payment never changes for the life of the loan. The amount allocated for your principal (the loan amount) goes up, however, your interest payment will decrease accordingly. The property tax and homeowners insurance will increase over time, but for the most part, payments on these types of loans vary little.

At the beginning of a a fixed-rate mortgage loan, the majority the payment is applied to interest. The amount paid toward principal increases up slowly each month.

You can choose a fixed-rate loan to lock in a low rate. People choose fixed-rate 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 into a fixed-rate loan can offer greater monthly payment stability. If you currently have an Adjustable Rate Mortgage (ARM), we can help you lock in a fixed-rate at the best rate currently available. Call New Millennium Mortgage Co. NMLS: 331173 at (941) 366-5800 for details.

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

Most ARM programs have a "cap" that protects you from sudden monthly payment increases. Some ARMs can't adjust more than two percent per year, regardless of the underlying interest rate. Sometimes an ARM has a "payment cap" that ensures that your payment will not go above a fixed amount in a given year. Additionally, almost all ARMs have a "lifetime cap" — your interest rate will never exceed the capped percentage.

ARMs usually start out at a very low rate that may increase over time. You've probably read about 5/1 or 3/1 ARMs. For these loans, the introductory rate is fixed for three or five years. After this period it adjusts every year. These types of loans are fixed for a number of years (3 or 5), then they adjust after the initial period. Loans like this are often best for people who anticipate moving within three or five years. These types of adjustable rate programs are best for borrowers who plan to sell their house or refinance before the loan adjusts.

You might choose an Adjustable Rate Mortgage to take advantage of a lower initial interest rate and plan on moving, refinancing or absorbing the higher rate after the initial rate goes up. ARMs are risky if property values decrease and borrowers are unable to sell or refinance.

Have questions about mortgage loans? Call us at (941) 366-5800. It's our job to answer these questions and many others, so we're happy to help!

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