Fixed versus adjustable loans

With a fixed-rate loan, your payment stays the same for the entire duration of the loan. The longer you pay, the more of your payment goes toward principal. Your property taxes increase, or rarely, decrease, and so might the homeowner's insurance in your monthly payment. But generally payments on a fixed-rate mortgage will increase very little.

During the early amortization period of a fixed-rate loan, most of your monthly payment goes toward interest, and a significantly smaller percentage goes to principal. The amount applied to principal increases up gradually every month.

You can choose a fixed-rate loan in order to lock in a low rate. Borrowers select 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 greater stability in monthly payments. If you have an Adjustable Rate Mortgage (ARM) now, we can help you lock in a fixed-rate at a good rate. Call Amity Mortgage LLC at (203) 729-6681 for details.

There are many types of Adjustable Rate Mortgages. Generally, interest for ARMs are determined by a federal index. A few of these are: the 6-month CD rate, the 1 year rate on Treasure Securities, the Federal Home Loan Bank's 11th District Cost of Funds Index (COFI), or others.

The majority of Adjustable Rate Mortgages are capped, so they won't increase above a specified amount in a given period of time. Some ARMs won't adjust more than 2% per year, regardless of the underlying interest rate. Sometimes an ARM features a "payment cap" that guarantees your payment won't go above a certain amount in a given year. The majority of ARMs also cap your interest rate over the life of the loan.

ARMs most often feature their lowest rates at the start of the loan. They guarantee that interest rate from a month to ten years. You've probably read about 5/1 or 3/1 ARMs. In these loans, the initial rate is fixed for three or five years. It then adjusts every year. These kinds of loans are fixed for 3 or 5 years, then they adjust after the initial period. These loans are usually best for people who anticipate moving in three or five years. These types of adjustable rate programs most benefit people who plan to move before the loan adjusts.

You might choose an Adjustable Rate Mortgage to get a very low initial rate and plan on moving, refinancing or absorbing the higher rate after the introductory rate expires. ARMs are risky when property values go down and borrowers cannot sell or refinance.

Have questions about mortgage loans? Call us at (203) 729-6681. It's our job to answer these questions and many others, so we're happy to help!

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