Adjustable versus fixed rate loans

A fixed-rate loan features the same payment amount over the life of your loan. Your property taxes increase, or rarely, decrease, and so might the homeowner's insurance in your monthly payment. But generally payment amounts on a fixed-rate loan will increase very little.

Your first few years of payments on a fixed-rate loan go mostly toward interest. This proportion reverses itself as the loan ages.

Borrowers might choose a fixed-rate loan to lock in a low interest rate. People choose these types of loans when interest rates are low and they wish to lock in this low rate. For homeowners who have an ARM now, refinancing into a fixed-rate loan can provide more monthly payment stability. If you currently have an Adjustable Rate Mortgage (ARM), we'll be glad to help you lock in a fixed-rate at a good rate. Call One Source Lending 303-220-7500 at 303-220-7500 for details.

There are many different types of Adjustable Rate Mortgages. ARMs are normally adjusted twice a year, based on various indexes.

Most ARM programs feature a "cap" that protects borrowers from sudden increases in monthly payments. Your ARM may feature a cap on how much your interest rate can go up in one period. For example: no more than two percent per year, even if the underlying index increases by more than two percent. Sometimes an ARM features a "payment cap" that guarantees that your payment won't go above a certain amount in a given year. Additionally, almost all ARM programs have a "lifetime cap" — this cap means that the interest rate won't go over the cap percentage.

ARMs usually start at a very low rate that may increase over time. You may have heard about "3/1 ARMs" or "5/1 ARMs". For these loans, the introductory rate is fixed for three or five years. It then adjusts every year. These loans are fixed for 3 or 5 years, then adjust. These loans are often best for borrowers who anticipate moving within three or five years. These types of ARMs most benefit people who will move before the initial lock expires.

You might choose an Adjustable Rate Mortgage to get a lower introductory interest rate and count on moving, refinancing or simply absorbing the higher rate after the initial rate expires. ARMs can be risky in a down market because homeowners can get stuck with increasing rates if they cannot sell their home or refinance at the lower property value.

Have questions about mortgage loans? Call us at 303-220-7500. We answer questions about different types of loans every day.