Differences between adjustable and fixed loans

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A fixed-rate loan features a fixed payment amount for the entire duration of your loan. Your property taxes increase, or rarely, decrease, and so might the homeowner's insurance in your monthly payment. But generally monthly payments for a fixed-rate loan will increase very little.

Early in a fixed-rate loan, a large percentage of your monthly payment pays interest, and a significantly smaller percentage goes to principal. As you pay , more of your payment is applied to principal.

Borrowers can choose a fixed-rate loan to lock in a low interest rate. Borrowers select these types of loans because interest rates are low and they wish to lock in the lower rate. For homeowners who have an ARM now, refinancing with a fixed-rate loan can provide greater monthly payment stability. If you have an Adjustable Rate Mortgage (ARM) now, we can help you lock in a fixed-rate at a favorable rate. Call Mortgage Max Inc at (760) 547-2080 to learn more.

There are many kinds of Adjustable Rate Mortgages. ARMs usually adjust every six months, based on various indexes.

Most ARM programs have a "cap" that protects borrowers from sudden monthly payment increases. Your ARM may feature a cap on how much your interest rate can go up in one period. For example: no more than a couple percent per year, even if the index the rate is based on increases by more than two percent. Sometimes an ARM features a "payment cap" which guarantees your payment will not increase beyond a certain amount over the course of a given year. Most ARMs also cap your rate over the duration of the loan period.

ARMs most often feature their lowest, most attractive rates at the start of the loan. They usually provide the lower rate for an initial period that varies greatly. You may hear people talking about "3/1 ARMs" or "5/1 ARMs". In these loans, the introductory rate is set for three or five years. After this period it adjusts every year. These kinds of loans are fixed for 3 or 5 years, then they adjust after the initial period. Loans like this are best for borrowers who expect to move in three or five years. These types of adjustable rate loans benefit people who plan to move before the initial lock expires.

Most people who choose ARMs choose them because they want to take advantage of lower introductory rates and don't plan to remain in the house for any longer than the introductory low-rate period. ARMs are risky if property values decrease and borrowers cannot sell or refinance.

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