Differences between fixed and adjustable rate loans

	Are you looking for a mortgage loan? We'll be glad to discuss our many mortgage solutions! Call us at 651-426-1988. Ready to get started? Apply Here.

A fixed-rate loan features a fixed payment amount for the entire duration of your loan. The property taxes and homeowners insurance will go up over time, but in general, payment amounts on these types of loans vary little.

At the beginning of a a fixed-rate mortgage loan, the majority your payment is applied to interest. The amount paid toward your principal amount increases up gradually each month.

Borrowers might choose a fixed-rate loan in order to lock in a low interest rate. Borrowers select these types of loans when interest rates are low and they wish to lock in at the lower rate. If you have an Adjustable Rate Mortgage (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'll be glad to help you lock in a fixed-rate at a favorable rate. Call me at 651-426-1988 to learn more.

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

Most ARMs feature this cap, so they won't increase above a certain amount in a given period. Some ARMs can't increase more than 2% per year, regardless of the underlying interest rate. Sometimes an ARM features a "payment cap" which guarantees that your payment won't increase beyond a fixed amount over the course of a given year. Almost all ARMs also cap your rate over the life of the loan period.

ARMs most often feature their lowest, most attractive rates toward the start. They guarantee that interest rate for an initial period that varies greatly. You've likely read about 5/1 or 3/1 ARMs. For these loans, the initial rate is fixed for three or five years. After this period it adjusts every year. These loans are fixed for 3 or 5 years, then they adjust after the initial period. Loans like this are usually best for people who expect to move in three or five years. These types of ARMs benefit people who will sell their house or refinance before the initial lock expires.

Most people who choose ARMs choose them because they want to take advantage of lower introductory rates and don't plan on remaining in the home for any longer than this initial low-rate period. ARMs can be risky when property values decrease and borrowers can't sell or refinance.

Have questions about mortgage loans? Call us at 651-426-1988. We answer questions about different types of loans every day.