Fixed versus adjustable rate loans

With a fixed-rate loan, your payment remains the same for the life of the loan. The longer you pay, the more of your payment goes toward principal. Your property taxes may go up (or rarely, down), and your insurance rates might vary as well. But generally payment amounts on your fixed-rate loan will be very stable.

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

Borrowers might choose a fixed-rate loan to lock in a low rate. People select fixed-rate loans because interest rates are low and they wish to lock in this low rate. If you have an Adjustable Rate Mortgage (ARM) now, refinancing into a fixed-rate loan can provide greater 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 a favorable rate. Call Affordable Lending LLC at 855-375-1211 to discuss how we can help.

Adjustable Rate Mortgages — ARMs, come in a great number of varieties. ARMs usually adjust every six months, based on various indexes.

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

ARMs most often feature the lowest rates at the beginning. They provide that interest 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. After this period it adjusts every year. These loans are fixed for a number of years (3 or 5), then adjust after the initial period. These loans are often best for people who expect to move in three or five years. These types of adjustable rate loans are best for people who will move before the initial lock expires.

Most borrowers who choose ARMs choose them because they want to get lower introductory rates and do not plan on remaining in the house longer than the initial low-rate period. ARMs can be risky when housing prices go down because homeowners could be stuck with rates that go up when they can't sell or refinance at the lower property value.