Fixed versus adjustable loans

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

When you first take out a fixed-rate loan, most of the payment goes toward interest. This proportion gradually reverses itself as the loan ages.

Borrowers might 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 low rate. For homeowners who have an ARM now, refinancing with a fixed-rate loan can offer more monthly payment stability. If you have an Adjustable Rate Mortgage (ARM) now, we can assist you in locking a fixed-rate at a good rate. Call American Success Mortgage at 2124733933 to learn more.

There are many different types of Adjustable Rate Mortgages. Generally, interest on ARMs are determined by a federal index. Some examples of outside indexes are: the 6-month CD rate, the one-year rate on Treasure Securities, the Federal Home Loan Bank's 11th District Cost of Funds Index (COFI), or others.

The majority of Adjustable Rate Mortgages are capped, which means they won't go up over a specific amount in a given period. Some ARMs won't increase more than 2% 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. Plus, almost all ARMs have a "lifetime cap" — this means that the interest rate won't go over the capped amount.

ARMs usually start out at a very low rate that may increase over time. You may hear people talking about "3/1 ARMs" or "5/1 ARMs". For 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 best for people who anticipate moving in three or five years. These types of adjustable rate programs are best for people who will sell their house or refinance before the initial lock expires.

You might choose an ARM to get a very low introductory rate and count on moving, refinancing or absorbing the higher rate after the introductory rate expires. ARMs can be risky when housing prices go down because homeowners can get stuck with increasing rates when they can't sell their home or refinance with a lower property value.

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