Adjustable versus fixed loans
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me at (662) 429-5100 ext 110 . Want to get started? Apply
With a fixed-rate loan,
your monthly payment never changes for the entire duration of
the mortgage. The amount allocated to your principal (the
amount you borrowed) will go up, however, your interest
payment will go down accordingly. The property taxes and
homeowners insurance will go up over time, but for the most
part, payments on these types of loans vary little.
Your first few years of payments on a fixed-rate loan go
primarily to pay interest. As you pay , more of your payment
is applied to principal.
Borrowers can choose a fixed-rate loan to lock in a low rate.
People choose fixed-rate loans when interest rates are low and
they want to lock in at the lower rate. For homeowners who
have an ARM now, refinancing with a fixed-rate loan can offer
more monthly payment stability. If you have an Adjustable Rate
Mortgage (ARM) now, we'd love to help you lock in a fixed-rate
at the best rate currently available. Call Fairway Independent
Mortgage Corp at (662) 429-5100 to learn more.
There are many types of Adjustable
Rate Mortgages. Generally, the interest on ARMs are
determined by an outside index. Some examples of outside
indexes are: the 6-month Certificate of Deposit (CD) rate, the
one-year Treasury Security rate, the Federal Home Loan Bank's
11th District Cost of Funds Index (COFI), or others.
Most programs have a "cap" that protects you from sudden
increases in monthly payments. Some ARMs can't adjust more
than 2% per year, regardless of the underlying interest rate.
Your loan may feature a "payment cap" that instead of capping
the interest directly, caps the amount that your payment can
increase in one period. In addition, almost all ARM programs
have a "lifetime cap" — the rate can't ever exceed the capped
ARMs most often feature their lowest rates at the beginning.
They provide the lower rate for an initial period that varies
greatly. You may have heard about "3/1 ARMs" or "5/1 ARMs". In
these loans, the introductory rate is fixed for three or five
years. After this period it adjusts every year. These types of
loans are fixed for 3 or 5 years, then they adjust after the
initial period. Loans like this are best for people who
anticipate moving in three or five years. These types of
adjustable rate programs are best for borrowers who will move
before the initial lock expires.
You might choose an ARM to take advantage of a lower
introductory interest rate and count on moving, refinancing or
simply absorbing the higher rate after the introductory rate
goes up. ARMs are risky if property values go down and
borrowers cannot sell or refinance their loan.
Have questions about mortgage loans? Call me at (662) 429-5100
EXT 110 . It's my job to answer these questions and many
others, so I'm happy to help!