Adjustable versus fixed loans

A fixed-rate loan features a fixed payment 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. For the most part monthly payments on a fixed-rate loan will be very stable.

During the early amortization period of a fixed-rate loan, a large percentage of your payment goes toward interest, and a significantly smaller part toward principal. This proportion gradually reverses as the loan ages.

You can choose a fixed-rate loan to lock in a low rate. Borrowers select fixed-rate loans when interest rates are low and they want to lock in the low rate. For homeowners who have an ARM now, refinancing into a fixed-rate loan can provide greater consistency in monthly payments. 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 Reliance Mortgage Service, Inc at 562 320-0510 to discuss your situation with one of our professionals.

Adjustable Rate Mortgages — ARMs, come in a great number of varieties. ARMs are generally adjusted every six months, based on various indexes.

Most programs feature a cap that protects borrowers from sudden increases in monthly payments. Some ARMs won't adjust more than two percent 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 the payment can go up in a given period. The majority of ARMs also cap your interest rate over the duration of the loan period.

ARMs usually start out at a very low rate that usually increases as the loan ages. You've probably read about 5/1 or 3/1 ARMs. In these loans, the initial rate is set for three or five years. It then adjusts every year. These kinds of loans are fixed for 3 or 5 years, then adjust. Loans like this are usually best for people who expect to move in three or five years. These types of adjustable rate loans benefit borrowers who will sell their house or refinance before the initial lock expires.

You might choose an Adjustable Rate Mortgage to take advantage of a very low introductory rate and count on moving, refinancing or absorbing the higher rate after the initial rate expires. ARMs are risky if property values decrease and borrowers are unable to sell or refinance.

Have questions about mortgage loans? Call us at 562 320-0510. We answer questions about different types of loans every day.

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