Adjustable versus fixed loans

A fixed-rate loan features a fixed payment for the entire duration of the loan. Your property taxes may go up (or rarely, down), and so might the homeowner's insurance in your monthly payment. For the most part payments on a fixed-rate loan will be very stable.

At the beginning of a a fixed-rate mortgage loan, most of your payment is applied to interest. The amount applied to principal goes up gradually each month.

You can choose a fixed-rate loan to lock in a low interest rate. Borrowers select these types of loans when interest rates are low and they wish to lock in at this lower rate. For homeowners who have an ARM now, refinancing with a fixed-rate loan can provide more monthly payment stability. 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 Iltis Lending Group at (941) 954-4252 to discuss how we can help.

Adjustable Rate Mortgages — ARMs, as we called them above — come in even more varieties. ARMs are normally adjusted twice a year, based on various indexes.

Most ARMs are capped, so they won't go up over a specific amount in a given period. Some ARMs can't adjust more than two percent per year, regardless of the underlying interest rate. Sometimes an ARM has a "payment cap" which guarantees your payment can't go above a certain amount over the course of a given year. Most ARMs also cap your rate over the life of the loan period.

ARMs most often feature their lowest, most attractive rates toward the start of the loan. They usually guarantee the lower rate for an initial period that varies greatly. You've likely heard of 5/1 or 3/1 ARMs. In these loans, the introductory rate is set for three or five years. After this period it adjusts every year. These types of loans are fixed for a number of years (3 or 5), then adjust after the initial period. Loans like this are best for people who anticipate moving within three or five years. These types of adjustable rate loans benefit borrowers who plan to move before the initial lock expires.

Most borrowers who choose ARMs do so when they want to get lower introductory rates and do not plan to stay in the home longer than this introductory low-rate period. ARMs are risky when property values decrease and borrowers can't sell their home or refinance their loan.

Have questions about mortgage loans? Call us at (941) 954-4252. We answer questions about different types of loans every day.