Adjustable versus fixed rate loans
A fixed-rate loan features the same payment amount for the entire duration of the mortgage. Your property taxes may go up (or rarely, down), and so might the homeowner's insurance in your monthly payment. For the most part payment amounts for your fixed-rate mortgage will be very stable.
At the beginning of a a fixed-rate loan, most of the payment goes toward interest. The amount paid toward your principal amount goes up gradually 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 want to lock in at the low rate. For homeowners who have an ARM now, refinancing into a fixed-rate loan can provide greater monthly payment stability. If you currently have an Adjustable Rate Mortgage (ARM), we can help you lock in a fixed-rate at a good rate. Call Augusta Mortgage Solutions at 7068605514 for details.
Adjustable Rate Mortgages — ARMs, come in even more varieties. ARMs are normally adjusted every six months, based on various indexes.
The majority of ARMs are capped, so they can't increase above a specific amount in a given period of time. Your ARM may feature a cap on how much your interest rate can go up in one period. For example: no more than two percent per year, even though the underlying index increases by more than two percent. Your loan may feature a "payment cap" that instead of capping the interest directly, caps the amount that the payment can increase in one period. Additionally, almost all ARMs have a "lifetime cap" — your rate won't exceed the capped percentage.
ARMs most often feature the lowest rates at the start of the loan. They usually guarantee the lower interest rate from a month to ten years. You've likely read about 5/1 or 3/1 ARMs. In these loans, the introductory rate is fixed for three or five years. It then adjusts every year. These loans are fixed for 3 or 5 years, then they adjust. These loans are often best for borrowers who anticipate moving within three or five years. These types of adjustable rate loans are best for borrowers who will move before the initial lock expires.
Most people who choose ARMs choose them because they want to take advantage of lower introductory rates and don't plan on remaining in the home for any longer than this introductory low-rate period. ARMs can be risky in a down market because homeowners can get stuck with rates that go up if they cannot sell or refinance at the lower property value.
Have questions about mortgage loans? Call us at 7068605514. It's our job to answer these questions and many others, so we're happy to help!