Fixed versus adjustable loans

With a fixed-rate loan, your monthly payment stays the same for the entire duration of the mortgage. The longer you pay, the more of your payment goes toward principal. The property taxes and homeowners insurance will increase over time, but for the most part, payments on these types of loans vary little.

At the beginning of a a fixed-rate mortgage loan, most of the payment is applied to interest. The amount applied to your principal amount increases up gradually every month.

Borrowers can choose a fixed-rate loan in order to lock in a low rate. People choose fixed-rate loans when interest rates are low and they wish to lock in at this low rate. For homeowners who have an ARM now, refinancing into a fixed-rate loan can offer more stability in monthly payments. If you currently have an Adjustable Rate Mortgage (ARM), we'll be glad to help you lock in 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 how we can help.

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

Most ARM programs feature a cap that protects you from sudden monthly payment increases. Your ARM may feature a cap on interest rate variances over the course of a year. For example: no more than a couple percent a year, even if the index the rate is based on goes up by more than two percent. Sometimes an ARM has a "payment cap" which guarantees your payment can't go above a certain amount over the course of a given year. Plus, the great majority of ARMs have a "lifetime cap" — the interest rate won't go over the capped amount.

ARMs most often have their lowest, most attractive rates toward the start. They usually guarantee that interest rate from a month to ten years. You may hear people talking about "3/1 ARMs" or "5/1 ARMs". For these loans, the introductory rate is fixed for three or five years. After this period it adjusts every year. These loans are fixed for 3 or 5 years, then they adjust. Loans like this are usually best for people who anticipate moving within three or five years. These types of adjustable rate loans benefit people who plan to move before the loan adjusts.

You might choose an ARM to take advantage of a very low initial rate and count on moving, refinancing or simply absorbing the higher rate after the initial rate goes up. ARMs can be risky if property values go down and borrowers can't sell or refinance their loan.

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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