Fixed Vs. Adjustable
Adjustable versus fixed rate loans
A fixed-rate loan features the same payment amount over the life of the mortgage. The property taxes and homeowners insurance will increase over time, but generally, payments on fixed rate loans change little over the life of the loan.
Your first few years of payments on a fixed-rate loan go mostly toward interest. As you pay , more of your payment is applied to principal.
You can choose a fixed-rate loan to lock in a low interest rate. People select these types of loans when interest rates are low and they wish to lock in this lower rate. For homeowners who have an ARM now, refinancing into a fixed-rate loan can provide more monthly payment stability. If you have an Adjustable Rate Mortgage (ARM) now, we can assist you in locking a fixed-rate at a good rate. Call The Mortgage Exchange Service LLC at 7032555810 to learn more.
Adjustable Rate Mortgages
There are many different types of Adjustable Rate Mortgages. Generally, 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.
The majority of ARMs feature this cap, which means they won’t go up above 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 has a “payment cap” which guarantees your payment can’t increase beyond a fixed amount over the course of a given year. Plus, almost all ARM programs have a “lifetime cap” — the interest rate can’t ever exceed the capped amount.
ARMs most often feature their lowest rates at the beginning. They provide that interest rate from a month to ten years. You’ve probably read about 5/1 or 3/1 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 adjust. These loans are usually best for people who anticipate moving within three or five years. These types of adjustable rate loans are best for borrowers who will sell their house or refinance before the initial lock expires.
Most borrowers who choose ARMs choose them because they want to take advantage of lower introductory rates and do not plan on remaining in the house for any longer than this initial low-rate period. ARMs can be risky in a down market because homeowners can get stuck with increasing rates when they can’t sell their home or refinance at the lower property value.