Differences between fixed and adjustable rate loans

A fixed-rate loan features the same payment for the entire duration of your mortgage. The property tax and homeowners insurance which are almost always part of the payment will increase over time, but in general, payments on fixed rate loans don't increase much.

Early in a fixed-rate loan, a large percentage of your payment pays interest, and a significantly smaller part toward principal. As you pay , more of your payment is applied to principal.

You can choose a fixed-rate loan to lock in a low rate. Borrowers select fixed-rate loans because interest rates are low and they wish to lock in at this lower rate. For homeowners who have an ARM now, refinancing into a fixed-rate loan can provide more consistency in monthly payments. If you currently have an Adjustable Rate Mortgage (ARM), we can assist you in locking a fixed-rate at a good rate. Call Integrated Financial Solutions, LLC at 4104614043 for details.

Adjustable Rate Mortgages — ARMs, come in many varieties. ARMs usually adjust every six months, based on various indexes.

Most Adjustable Rate Mortgages are capped, so they won't increase above a specific amount in a given period. There may be a cap on how much your interest rate can increase in one period. For example: no more than two percent a year, even though the index the rate is based on increases by more than two percent. Your loan may have a "payment cap" that instead of capping the interest directly, caps the amount that your payment can increase in a given period. Additionally, almost all ARMs have a "lifetime cap" — your interest rate can't ever go over the cap percentage.

ARMs most often have their lowest, most attractive rates toward the beginning. They guarantee that rate for an initial period that varies greatly. You've probably read about 5/1 or 3/1 ARMs. For these loans, the initial rate is set for three or five years. After this period it adjusts every year. These kinds of loans are fixed for a number of years (3 or 5), then they adjust. These loans are usually best for borrowers who expect to move in three or five years. These types of ARMs benefit people who will sell their house or refinance before the loan adjusts.

You might choose an ARM to get a very low initial rate and count on moving, refinancing or simply absorbing the higher rate after the introductory rate expires. ARMs can be risky when housing prices go down because homeowners could be stuck with increasing rates if they can't sell their home or refinance with a lower property value.

Have questions about mortgage loans? Call us at 4104614043. We answer questions about different types of loans every day.


Integrated Financial Solutions, LLC

11110 Dovedale Ct 28A
Marriottsville, MD - Maryland 21104