Adjustable versus fixed rate loans

A fixed-rate loan features a fixed payment for the entire duration of your loan. Your property taxes may go up (or rarely, down), and so might the homeowner's insurance in your monthly payment. For the most part payments on your fixed-rate mortgage will be very stable.

Your first few years of payments on a fixed-rate loan go mostly toward interest. The amount paid toward your principal amount goes up slowly every month.

You can choose a fixed-rate loan to lock in a low rate. People choose these types of loans when interest rates are low and they want to lock in the lower rate. For homeowners who have an ARM now, refinancing with a fixed-rate loan can offer more monthly payment stability. If you have an Adjustable Rate Mortgage (ARM) now, we can help you lock in a fixed-rate at a favorable rate. Call F&T Mortgage, Inc. NMLS # 168839 (www.nmlsconsumeraccess.org) at 214-300-8756 to discuss how we can help.

Adjustable Rate Mortgages — ARMs, come in many varieties. ARMs are generally adjusted every six months, based on various indexes.

Most programs feature a "cap" that protects borrowers from sudden increases in monthly payments. Some ARMs can't adjust more than two percent per year, regardless of the underlying interest rate. Sometimes an ARM has a "payment cap" that guarantees that your payment can't go above a fixed amount over the course of a given year. Almost all ARMs also cap your rate over the life of the loan.

ARMs most often feature their lowest rates toward the start of the loan. They guarantee the lower rate from a month to ten years. You've probably read about 5/1 or 3/1 ARMs. For these loans, the initial rate is set for three or five years. It then adjusts every year. These loans are fixed for 3 or 5 years, then adjust after the initial period. These loans are often best for people who anticipate moving within three or five years. These types of ARMs benefit borrowers who will sell their house or refinance before the initial lock expires.

You might choose an ARM to take advantage of a lower initial 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 could be stuck with rates that go up if they can't sell their home or refinance at the 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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