Differences between adjustable and fixed rate 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. But generally monthly payments for a fixed-rate mortgage will be very stable.

When you first take out a fixed-rate mortgage loan, most of the payment is applied to interest. This proportion reverses as the loan ages.

Borrowers can 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 want to lock in at the low rate. For homeowners who have an ARM now, refinancing with a fixed-rate loan can provide greater stability in monthly payments. If you have an Adjustable Rate Mortgage (ARM) now, we'd love to help you lock in a fixed-rate at the best rate currently available. Call Integrated Financial Solutions, LLC at 4104614043 to discuss your situation with one of our professionals.

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

The majority of ARMs are capped, so they can't increase over a certain amount in a given period. Your ARM may feature a cap on interest rate increases over the course of a year. For example: no more than a couple percent a year, even though the index the rate is based on goes up by more than two percent. Your loan may feature a "payment cap" that instead of capping the interest rate directly, caps the amount that the payment can go up in one period. The majority of ARMs also cap your interest rate over the life of the loan period.

ARMs usually start out at a very low rate that may increase over time. You may hear people talking about "3/1 ARMs" or "5/1 ARMs". In 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 adjust after the initial period. Loans like this are usually best for borrowers who expect to move within three or five years. These types of adjustable rate loans benefit people who plan to sell their house or refinance before the loan adjusts.

You might choose an Adjustable Rate Mortgage to take advantage of a very low introductory interest rate and plan on moving, refinancing or absorbing the higher rate after the introductory rate goes up. ARMs can be risky when property values go down and borrowers can't sell or refinance.

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