Adjustable versus fixed rate loans

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

When you first take out a fixed-rate loan, most of the payment is applied to interest. This proportion gradually reverses as the loan ages.

You can choose a fixed-rate loan to lock in a low interest rate. People choose these types of loans because interest rates are low and they want to lock in at this lower rate. For homeowners who have an ARM now, refinancing into a fixed-rate loan can offer more stability 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 good rate. Call Excel Mortgage Corp. USA at 6106475454 to discuss how we can help.

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

Most programs have a "cap" that protects you from sudden increases in monthly payments. Some ARMs can't adjust more than two percent per year, regardless of the underlying interest rate. Sometimes an ARM has a "payment cap" which guarantees that your payment can't increase beyond a certain amount over the course of a given year. Additionally, the great majority of ARMs have a "lifetime cap" — this means that the interest rate won't go over the capped amount.

ARMs most often feature the lowest rates toward the beginning of the loan. They guarantee the lower interest rate from a month to ten years. You may have heard about "3/1 ARMs" or "5/1 ARMs". In these loans, the introductory rate is set for three or five years. It then adjusts every year. These loans are fixed for a certain number of years (3 or 5), then adjust after the initial period. These loans are usually best for borrowers who anticipate moving in three or five years. These types of adjustable rate loans are best for people who will sell their house or refinance before the initial lock expires.

You might choose an ARM to take advantage of a lower initial interest rate and count on moving, refinancing or simply absorbing the higher rate after the initial rate goes up. ARMs are risky if property values go down and borrowers are unable to sell or refinance their loan.

Have questions about mortgage loans? Call us at 6106475454. We answer questions about different types of loans every day.