Fixed versus adjustable loans

With a fixed-rate loan, your monthly payment never changes for the life of the loan. The longer you pay, the more of your payment goes toward principal. The property tax and homeowners insurance will go up over time, but in general, payment amounts on fixed rate loans vary little.

Your first few years of payments on a fixed-rate loan go mostly to pay interest. That reverses as the loan ages.

Borrowers might choose a fixed-rate loan to lock in a low interest rate. Borrowers 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 provide greater monthly payment stability. If you have an Adjustable Rate Mortgage (ARM) now, we can assist you in locking a fixed-rate at the best rate currently available. Call F&T Mortgage, Inc. NMLS # 168839 (www.nmlsconsumeraccess.org) at 214-300-8756 to discuss your situation with one of our professionals.

There are many different kinds of Adjustable Rate Mortgages. ARMs are normally adjusted every six months, based on various indexes.

Most programs have a cap that protects you from sudden increases in monthly payments. Some ARMs won't increase more than two percent per year, regardless of the underlying interest rate. Sometimes an ARM features a "payment cap" that ensures that your payment can't go above a fixed amount over the course of a given year. Most ARMs also cap your rate over the life of the loan period.

ARMs usually start out at a very low rate that usually increases over time. You may have heard about "3/1 ARMs" or "5/1 ARMs". For these loans, the introductory rate is set for three or five years. After this period it adjusts every year. These types of loans are fixed for a certain number of years (3 or 5), then adjust after the initial period. These loans are usually best for borrowers who anticipate moving in three or five years. These types of adjustable rate programs benefit borrowers who plan to sell their house or refinance before the initial lock expires.

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 goes up. ARMs can be risky in a down market because homeowners can get stuck with rates that go up when they can't sell or refinance with a lower property value.

Have questions about mortgage loans? Call us at 214-300-8756. It's our job to answer these questions and many others, so we're happy to help!



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