Fixed versus adjustable loans

A fixed-rate loan features the same payment amount over the life of your loan. The property tax and homeowners insurance will increase over time, but in general, payments on these types of loans change little over the life of the loan.

Early in a fixed-rate loan, most of your payment pays interest, and a significantly smaller percentage toward principal. The amount paid toward your principal amount increases up gradually each month.

You can choose a fixed-rate loan to lock in a low rate. People select fixed-rate loans because interest rates are low and they wish to lock in the low rate. If you have an Adjustable Rate Mortgage (ARM) now, refinancing into a fixed-rate loan can offer greater consistency in monthly payments. If you currently have an Adjustable Rate Mortgage (ARM), we'll be glad to assist you in locking a fixed-rate at a good rate. Call C2 Financial Corporation at (727) 478-2797 to discuss how we can help.

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

Most ARM programs feature a cap that protects borrowers from sudden monthly payment increases. Your ARM may feature a cap on interest rate variances over the course of a year. For example: no more than a couple percent a year, even though the index the rate is based on increases by more than two percent. Your loan may have a "payment cap" that instead of capping the interest directly, caps the amount the monthly payment can go up in one period. Plus, almost all ARMs have a "lifetime cap" — the rate can't ever go over the cap amount.

ARMs most often feature the lowest rates toward the beginning of the loan. They usually guarantee that rate from a month to ten years. You've probably read about 5/1 or 3/1 ARMs. In these loans, the initial 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 adjust after the initial period. Loans like this are often best for people who anticipate moving in three or five years. These types of ARMs most benefit borrowers who plan to move before the loan adjusts.

Most borrowers who choose ARMs do so because they want to take advantage of lower introductory rates and don't plan to stay in the house longer than the initial low-rate period. ARMs can be risky when property values go down and borrowers cannot sell their home or refinance.

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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