Adjustable versus fixed loans

With a fixed-rate loan, your monthly payment doesn't change for the life of your mortgage. The longer you pay, the more of your payment goes toward principal. The property taxes and homeowners insurance will increase over time, but generally, payment amounts on fixed rate loans change little over the life of the loan.

During the early amortization period of a fixed-rate loan, a large percentage of your payment goes toward interest, and a much smaller part goes to principal. This proportion reverses itself as the loan ages.

You might choose a fixed-rate loan to lock in a low rate. People choose fixed-rate loans because interest rates are low and they want to lock in this low rate. If you have an Adjustable Rate Mortgage (ARM) now, refinancing with a fixed-rate loan can offer more stability in monthly payments. If you currently have an Adjustable Rate Mortgage (ARM), we'll be glad to help you lock in a fixed-rate at the best rate currently available. Call HT Lending Group, LLC at 817-431-8618 for details.

Adjustable Rate Mortgages — ARMs, come in even more varieties. Generally, interest rates on ARMs are determined by a federal index. A few of these are: the 6-month Certificate of Deposit (CD) rate, the one-year Treasury Security rate, the Federal Home Loan Bank's 11th District Cost of Funds Index (COFI), or others.

Most Adjustable Rate Mortgages are capped, which means they can't go up over a specified amount in a given period of time. 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 if the underlying index goes up by more than two percent. Sometimes an ARM has a "payment cap" which guarantees that your payment won't increase beyond a certain amount in a given year. Almost all ARMs also cap your interest rate over the life of the loan.

ARMs most often have the lowest rates at the beginning. They provide the lower rate from a month to ten years. You've probably heard of 5/1 or 3/1 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. These loans are best for borrowers who expect to move in three or five years. These types of adjustable rate loans benefit borrowers who plan to move before the loan adjusts.

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

Have questions about mortgage loans? Call us at 817-431-8618. It's our job to answer these questions and many others, so we're happy to help!

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