Adjustable versus fixed loans

A fixed-rate loan features a fixed payment for the entire duration of the mortgage. The property tax and homeowners insurance will increase over time, but for the most part, payments on fixed rate loans vary little.

During the early amortization period of a fixed-rate loan, most of your monthly payment pays interest, and a significantly smaller percentage goes to principal. That reverses itself as the loan ages.

You might 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 wish to lock in this low rate. For homeowners who have an ARM now, refinancing into a fixed-rate loan can provide greater monthly payment stability. 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 Carter Financial Solutions at 8668408745 to discuss how we can help.

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

Most ARM programs feature a cap that protects you from sudden increases in monthly payments. There may be a cap on how much your interest rate can increase in one period. For example: no more than two percent per year, even though the underlying index increases by more than two percent. Sometimes an ARM has a "payment cap" that guarantees that your payment won't increase beyond a certain amount over the course of a given year. Almost all ARMs also cap your interest rate over the life of the loan period.

ARMs usually start at a very low rate that may increase over time. You've probably heard of 5/1 or 3/1 ARMs. For these loans, the initial rate is set for three or five years. After this period it adjusts every year. These loans are fixed for a number of years (3 or 5), then adjust. Loans like this are often best for borrowers who expect to move in three or five years. These types of ARMs benefit borrowers who will sell their house or refinance before the initial lock expires.

You might choose an ARM to take advantage of a lower introductory rate and count on moving, refinancing or simply absorbing the higher rate after the initial rate expires. ARMs can be risky if property values decrease and borrowers can't sell or refinance.

Have questions about mortgage loans? Call us at 8668408745. It's our job to answer these questions and many others, so we're happy to help!

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Carter Financial Solutions

2291 W. March Ln Suite A100
Stockton, CA 95207