Adjustable versus fixed loans

A fixed-rate loan features a fixed payment amount for the entire duration of the loan. The property taxes and homeowners insurance which are almost always part of the payment will go up over time, but for the most part, payment amounts on fixed rate loans change little over the life of the loan.

At the beginning of a a fixed-rate mortgage loan, the majority the payment goes toward interest. The amount paid toward principal goes up gradually every month.

You can choose a fixed-rate loan in order to lock in a low rate. People choose fixed-rate loans because interest rates are low and they want to lock in this lower rate. If you have an Adjustable Rate Mortgage (ARM) now, refinancing with a fixed-rate loan can provide more consistency in monthly payments. If you have an Adjustable Rate Mortgage (ARM) now, we'll be glad to help you lock in a fixed-rate at a favorable rate. Call Union Mortgage Investment Group at 305-598-9896 to discuss how we can help.

There are many types of Adjustable Rate Mortgages. ARMs are generally adjusted every six months, based on various indexes.

Most programs feature a cap that protects you from sudden monthly payment increases. Some ARMs can't increase more than two percent per year, regardless of the underlying interest rate. Your loan may feature a "payment cap" that instead of capping the interest rate directly, caps the amount your monthly payment can increase in a given period. Almost all ARMs also cap your interest rate over the duration of the loan.

ARMs most often have the lowest, most attractive rates at the start. They guarantee the lower interest rate from a month to ten years. You've probably heard of 5/1 or 3/1 ARMs. For these loans, the introductory rate is set for three or five years. It then adjusts every year. These loans are fixed for a number of years (3 or 5), then they adjust. These loans are often best for borrowers who anticipate moving in three or five years. These types of adjustable rate programs are best for people who plan to move before the initial lock expires.

Most borrowers who choose ARMs choose them when they want to take advantage of lower introductory rates and don't plan on staying in the home for any longer than this initial low-rate period. ARMs can be risky when housing prices go down because homeowners could be stuck with increasing rates when they can't sell their home or refinance at the lower property value.