Differences between fixed and adjustable rate loans

A fixed-rate loan features a fixed payment amount for the entire duration of your mortgage. Your property taxes may go up (or rarely, down), and so might the homeowner's insurance in your monthly payment. But generally payment amounts on your fixed-rate loan will increase very little.

Early in a fixed-rate loan, a large percentage of your payment goes toward interest, and a much smaller percentage goes to principal. As you pay , more of your payment is applied to principal.

Borrowers might choose a fixed-rate loan in order to lock in a low rate. People choose these types of loans because interest rates are low and they want to lock in the low rate. If you have an Adjustable Rate Mortgage (ARM) now, refinancing into a fixed-rate loan can provide greater monthly payment stability. If you have an Adjustable Rate Mortgage (ARM) now, we'd love to help you lock in a fixed-rate at a good rate. Call C2 Financial Corporation at (727) 478-2797 for details.

There are many kinds of Adjustable Rate Mortgages. ARMs usually adjust twice a year, based on various indexes.

The majority of ARMs are capped, which means they can't increase over a specific amount in a given period of time. Some ARMs can'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 that your payment can increase in one period. Plus, the great majority of ARM programs have a "lifetime cap" — your rate can't exceed the cap amount.

ARMs usually start at a very low rate that usually increases as the loan ages. You may hear people talking about "3/1 ARMs" or "5/1 ARMs". For these loans, the initial rate is fixed for three or five years. It then adjusts every year. These kinds of loans are fixed for 3 or 5 years, then adjust after the initial period. These loans are usually best for people who anticipate moving in three or five years. These types of adjustable rate programs are best for borrowers who plan to move before the initial lock expires.

You might choose an Adjustable Rate Mortgage to take advantage of a very low introductory interest rate and count on moving, refinancing or absorbing the higher rate after the introductory rate goes up. ARMs can be risky when housing prices go down because homeowners could be stuck with increasing rates when they can't sell or refinance at the lower property value.

Have questions about mortgage loans? Call us at (727) 478-2797. We answer questions about different types of loans every day.

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