Differences between adjustable and fixed loans

	Shopping for a mortgage loan? James will be glad to assist you! Give him a call today at 1-708-647-5248 or Apply Here.

A fixed-rate loan features a fixed payment over the life of your loan. Your property taxes increase, or rarely, decrease, and your insurance rates might vary as well. But generally payments for a fixed-rate mortgage will be very stable.

At the beginning of a a fixed-rate loan, the majority the payment goes toward interest. The amount paid toward principal goes up gradually each month.

Borrowers might choose a fixed-rate loan in order to lock in a low interest rate. Borrowers choose these types of loans when interest rates are low and they wish to lock in this lower rate. For homeowners who have an ARM now, refinancing into a fixed-rate loan can provide more stability in monthly payments. If you have an Adjustable Rate Mortgage (ARM) now, James can assist you in locking a fixed-rate at the best rate currently available. Call James Culpepper at 1-708-647-5248 for details.

Adjustable Rate Mortgages — ARMs, come in even more varieties. Generally, the interest rates on ARMs are based on a federal index. A few of these are: the 6-month CD rate, the 1 year rate on Treasure Securities, the Federal Home Loan Bank's 11th District Cost of Funds Index (COFI), or others.

The majority of ARMs feature this cap, so they won't increase above a specific amount in a given period of time. Some ARMs won't increase more than 2% 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 your monthly payment can increase in a given period. Almost all ARMs also cap your interest rate over the duration of the loan period.

ARMs most often have their lowest, most attractive rates at the start of the loan. They usually provide that interest rate for an initial period that varies greatly. You may have heard about "3/1 ARMs" or "5/1 ARMs". For these loans, the initial rate is fixed for three or five years. After this period it adjusts every year. These types of loans are fixed for a certain number of years (3 or 5), then adjust after the initial period. Loans like this are often best for borrowers who expect to move within three or five years. These types of ARMs benefit people who will move before the initial lock expires.

Most borrowers who choose ARMs do so when they want to take advantage of lower introductory rates and do not plan to remain in the house for any longer than this introductory low-rate period. ARMs are risky when property values decrease and borrowers cannot sell their home or refinance their loan.

Have questions about ARMs? Call James Culpepper at 1-708-647-5248. It's his job to answer these questions and many others, so he's happy to help!