Fixed versus adjustable loans

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

When you first take out a fixed-rate mortgage loan, most of the payment is applied to interest. That gradually reverses as the loan ages.

Borrowers can choose a fixed-rate loan to lock in a low rate. People select fixed-rate loans when interest rates are low and they want to lock in at the lower rate. For homeowners who have an ARM now, refinancing with a fixed-rate loan can offer more 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 Integris Loans at 8014134570 to learn more.

Adjustable Rate Mortgages — ARMs, as we called them above — come in a great number of varieties. Generally, the interest for ARMs are based on an outside index. A few of these are: the 6-month CD rate, the one-year Treasury Security rate, the Federal Home Loan Bank's 11th District Cost of Funds Index (COFI), or others.

Most ARM programs feature a cap that protects borrowers from sudden monthly payment increases. Some ARMs won'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 your payment can increase in one period. In addition, almost all adjustable programs feature a "lifetime cap" — the interest rate will never exceed the capped percentage.

ARMs usually start out 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 introductory rate is fixed for three or five years. After this period it adjusts every year. These loans are fixed for a certain number of years (3 or 5), then they adjust after the initial period. Loans like this are often best for people who expect to move within three or five years. These types of adjustable rate loans most benefit people who plan to sell their house or refinance before the initial lock expires.

Most people who choose ARMs choose them because they want to get lower introductory rates and don't plan on staying in the house longer than this introductory low-rate period. ARMs can be risky when housing prices go down because homeowners can get stuck with increasing rates when they can't sell their home or refinance with a lower property value.

Have questions about mortgage loans? Call us at 8014134570. It's our job to answer these questions and many others, so we're happy to help!

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Integris Loans

9980 S 300 W Ste 200
Sandy, UT 84070