Differences between fixed and adjustable rate loans

	Are you looking for a mortgage loan? We will be glad to help! Give us a call at 8088830740. Want to get started? Apply Now.

With a fixed-rate loan, your monthly payment never changes for the entire duration of your loan. The amount that goes for principal (the amount you borrowed) goes up, however, your interest payment will go down accordingly. The property tax and homeowners insurance will increase over time, but generally, payments on fixed rate loans don't increase much.

When you first take out a fixed-rate mortgage loan, the majority the payment goes toward interest. As you pay on the loan, more of your payment is applied to principal.

You can choose a fixed-rate loan to lock in a low rate. Borrowers select these types of loans when interest rates are low and they wish to lock in the low rate. If you have an Adjustable Rate Mortgage (ARM) now, refinancing with a fixed-rate loan can offer greater monthly payment stability. If you have an Adjustable Rate Mortgage (ARM) now, we'll be glad to assist you in locking a fixed-rate at the best rate currently available. Call Spooner Financial Services, Inc. at 8088830740 to learn more.

There are many different kinds of Adjustable Rate Mortgages. Generally, the interest on ARMs are determined by a federal index. Some examples of outside indexes are: the 6-month CD rate, the 1 year rate on Treasure Securities, the Federal Home Loan Bank's 11th District Cost of Funds Index (COFI), or others.

Most ARMs are capped, so they won't go up above a specified amount in a given period of time. There may be a cap on how much your interest rate can increase in one period. For example: no more than two percent a year, even though the index the rate is based on goes up by more than two percent. Your loan may feature a "payment cap" that instead of capping the interest rate directly, caps the amount the payment can increase in a given period. Almost all ARMs also cap your interest rate over the duration of the loan period.

ARMs usually start at a very low rate that may increase as the loan ages. You may hear people talking 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 types of loans are fixed for 3 or 5 years, then adjust. These loans are usually best for people who anticipate moving within three or five years. These types of adjustable rate loans benefit people who will sell their house or refinance before the loan adjusts.

You might choose an Adjustable Rate Mortgage to get a very low introductory rate and plan on moving, refinancing or absorbing the higher rate after the introductory rate expires. ARMs can be risky if property values go down and borrowers are unable to sell or refinance.

Have questions about mortgage loans? Call us at 8088830740. We answer questions about different types of loans every day.