Adjustable versus fixed loans

A fixed-rate loan features a fixed payment over the life of the 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 for your fixed-rate loan will be very stable.

Your first few years of payments on a fixed-rate loan are applied primarily to pay interest. As you pay , more of your payment goes toward principal.

Borrowers might choose a fixed-rate loan to lock in a low rate. People select fixed-rate loans when interest rates are low and they wish to lock in the lower rate. If you have an Adjustable Rate Mortgage (ARM) now, refinancing into a fixed-rate loan can provide more stability 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 the best rate currently available. Call C2 Financial Corporation at (727) 478-2797 to learn more.

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

Most ARM programs feature a cap that protects you from sudden increases in monthly payments. 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 rate directly, caps the amount that the payment can go up in a given period. Plus, the great majority of adjustable programs feature a "lifetime cap" — your rate can't exceed the capped amount.

ARMs most often have their lowest, most attractive rates at the start of the loan. They provide the lower interest rate from a month to ten years. You may hear people talking about "3/1 ARMs" or "5/1 ARMs". For these loans, the introductory rate is set for three or five years. After this period it adjusts every year. These loans are fixed for 3 or 5 years, then they adjust. These loans are usually best for borrowers who anticipate moving in three or five years. These types of ARMs benefit borrowers who plan to move before the loan adjusts.

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

Have questions about mortgage loans? Call us at (727) 478-2797. It's our job to answer these questions and many others, so we're happy to help!

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