Adjustable versus fixed 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 so might the homeowner's insurance in your monthly payment. But generally monthly payments on a fixed-rate loan will be very stable.
Your first few years of payments on a fixed-rate loan are applied primarily toward interest. The amount applied to your principal amount goes up slowly each month.
You might choose a fixed-rate loan to lock in a low rate. Borrowers select fixed-rate loans because interest rates are low and they wish to lock in the low rate. For homeowners who have an ARM now, refinancing with a fixed-rate loan can offer more consistency in monthly payments. 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 AmeriBest Mortgage at (321) 777-7277 for details.
There are many different kinds of Adjustable Rate Mortgages. ARMs usually adjust twice a year, based on various indexes.
The majority of Adjustable Rate Mortgages feature this cap, so they can't increase over a specified amount in a given period of time. Some ARMs can't adjust more than 2% per year, regardless of the underlying interest rate. Sometimes an ARM features a "payment cap" that guarantees your payment can't go above a certain amount over the course of a given year. The majority of ARMs also cap your interest rate over the duration of the loan.
ARMs most often feature their lowest, most attractive rates at the start of the loan. They usually provide that rate from a month to ten years. You may hear people talking about "3/1 ARMs" or "5/1 ARMs". In these loans, the introductory rate is fixed 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 borrowers who expect to move in three or five years. These types of adjustable rate loans benefit borrowers who plan to move before the initial lock expires.
You might choose an ARM to get a very low introductory rate and plan on moving, refinancing or simply absorbing the higher rate after the introductory rate goes up. ARMs can be risky in a down market because homeowners could be stuck with rates that go up if they can't sell their home or refinance with a lower property value.
Have questions about mortgage loans? Call us at (321) 777-7277. It's our job to answer these questions and many others, so we're happy to help!