Adjustable versus fixed loans
A fixed-rate loan features a fixed payment amount for the entire duration of your loan. The property tax and homeowners insurance will increase over time, but in general, payment amounts on these types of loans vary little.
Your first few years of payments on a fixed-rate loan are applied mostly toward interest. That gradually reverses as the loan ages.
Borrowers might choose a fixed-rate loan to lock in a low rate. People select these types of loans when interest rates are low and they want to lock in at this lower rate. For homeowners who have an ARM now, refinancing with a fixed-rate loan can offer greater consistency in monthly payments. If you currently have an Adjustable Rate Mortgage (ARM), we'll be glad to help you lock in a fixed-rate at the best rate currently available. Call Norcal Capital Group, Inc at 6507631924 to learn more.
Adjustable Rate Mortgages — ARMs, come in a great number of varieties. ARMs are generally adjusted twice a year, based on various indexes.
The majority of Adjustable Rate Mortgages feature this cap, which means they won't increase 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 your payment won't go above a certain amount over the course of a given year. Most ARMs also cap your interest rate over the life of the loan.
ARMs most often feature the lowest rates toward the beginning. They guarantee that interest rate for an initial period that varies greatly. You've likely read about 5/1 or 3/1 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 they adjust. These loans are usually best for people who expect to move in three or five years. These types of adjustable rate programs most benefit borrowers who will move before the initial lock expires.
You might choose an Adjustable Rate Mortgage to get a lower initial rate and count on moving, refinancing or absorbing the higher rate after the initial rate expires. ARMs can be risky when housing prices go down because homeowners can get stuck with rates that go up when they can't sell their home or refinance at the lower property value.
Have questions about mortgage loans? Call us at 6507631924. We answer questions about different types of loans every day.