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Adjustable versus fixed loans

A fixed-rate loan features the same payment for the entire duration of the mortgage. Your property taxes may go up (or rarely, down), and your insurance rates might vary as well. For the most part payments for your fixed-rate loan will increase very little.

Early in a fixed-rate loan, a large percentage of your monthly payment goes toward interest, and a significantly smaller part toward principal. That reverses as the loan ages.

Borrowers might choose a fixed-rate loan to lock in a low rate. Borrowers select fixed-rate loans when interest rates are low and they want to lock in this lower rate. For homeowners who have an ARM now, refinancing with a fixed-rate loan can offer greater monthly payment stability. If you currently have an Adjustable Rate Mortgage (ARM), we'll be glad to help you lock in a fixed-rate at a good rate. Call Town & Country Home Loans, Inc. at (760)789-9995 for details.

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

The majority of ARMs feature this cap, so they won't increase above a specific amount in a given period. Some ARMs won't adjust more than 2% per year, regardless of the underlying interest rate. Sometimes an ARM has a "payment cap" that ensures that your payment will not increase beyond a certain amount over the course of a given year. Almost all ARMs also cap your rate over the duration of the loan.

ARMs most often have their lowest rates at the start. 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 initial rate is set for three or five years. It then adjusts every year. These types of loans are fixed for 3 or 5 years, then they adjust after the initial period. Loans like this are usually best for borrowers who expect to move in three or five years. These types of ARMs benefit people who will move before the loan adjusts.

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

Have questions about mortgage loans? Call us at (760)789-9995. We answer questions about different types of loans every day.

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