Adjustable versus fixed rate loans

In the market for a new mortgage loan? We'll be glad to discuss our mortgage offerings! Give us a call today at 561.775.2724. Ready to begin? Apply Here.

A fixed-rate loan features the same payment amount for the entire duration of your loan. Your property taxes increase, or rarely, decrease, and your insurance rates might vary as well. But generally payments on your fixed-rate mortgage will increase very little.

Your first few years of payments on a fixed-rate loan are applied mostly to pay interest. That gradually reverses itself as the loan ages.

Borrowers can choose a fixed-rate loan in order to lock in a low rate. Borrowers select fixed-rate loans when interest rates are low and they want to lock in this lower rate. If you have an Adjustable Rate Mortgage (ARM) now, refinancing with a fixed-rate loan can offer greater consistency in monthly payments. If you have an Adjustable Rate Mortgage (ARM) now, we'll be glad to assist you in locking a fixed-rate at a favorable rate. Call Arch Mortgage Corporation at 561.775.2724 to discuss how we can help.

Adjustable Rate Mortgages — ARMs, as we called them above — come in many varieties. ARMs are normally adjusted every six months, based on various indexes.

Most programs have a cap that protects borrowers from sudden monthly payment increases. Some ARMs can't increase more than two percent per year, regardless of the underlying interest rate. Your loan may have a "payment cap" that instead of capping the interest directly, caps the amount that your monthly payment can increase in one period. In addition, the great majority of ARMs feature a "lifetime cap" — your interest rate will never go over the capped percentage.

ARMs usually start out at a very low rate that usually increases as the loan ages. You've likely read about 5/1 or 3/1 ARMs. For 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 a certain number of years (3 or 5), then adjust. These loans are best for borrowers who expect to move in three or five years. These types of adjustable rate loans are best for borrowers who will move before the initial lock expires.

Most borrowers who choose ARMs do so because they want to take advantage of lower introductory rates and do not plan on staying in the home for any longer than this initial low-rate period. ARMs can be risky in a down market because homeowners can get stuck with rates that go up when they can't sell or refinance with a lower property value.

Have questions about mortgage loans? Call us at 561.775.2724. We answer questions about different types of loans every day.