Differences between adjustable and fixed loans

A fixed-rate loan features a fixed payment for the entire duration of the mortgage. The property tax and homeowners insurance will go up over time, but generally, payment amounts on fixed rate loans change little over the life of the loan.

When you first take out a fixed-rate loan, most of the payment goes toward interest. As you pay , more of your payment is applied to principal.

You might choose a fixed-rate loan in order to lock in a low interest rate. Borrowers choose fixed-rate loans when interest rates are low and they wish to lock in at this low rate. For homeowners who have an ARM now, refinancing into a fixed-rate loan can provide greater consistency in monthly payments. If you have an Adjustable Rate Mortgage (ARM) now, we'll be glad to help you lock in a fixed-rate at a good rate. Call Iltis Lending Group at (941) 954-4252 to learn more.

Adjustable Rate Mortgages — ARMs, come in a great number of varieties. ARMs are normally adjusted twice a year, based on various indexes.

Most ARM programs feature a "cap" that protects you from sudden monthly payment increases. There may be a cap on how much your interest rate can increase in one period. For example: no more than a couple percent per year, even though the underlying index goes up by more than two percent. Sometimes an ARM has a "payment cap" that guarantees that your payment will not increase beyond a certain amount over the course of a given year. In addition, almost all adjustable programs feature a "lifetime cap" — your interest rate won't go over the capped percentage.

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

You might choose an Adjustable Rate Mortgage to get a very low introductory rate and count on moving, refinancing or simply absorbing the higher rate after the initial rate expires. ARMs can be risky when property values decrease and borrowers are unable to sell their home or refinance.

Have questions about mortgage loans? Call us at (941) 954-4252. It's our job to answer these questions and many others, so we're happy to help!