Adjustable versus fixed loans

A fixed-rate loan features the same payment amount over the life of the loan. Your property taxes may go up (or rarely, down), and your insurance rates might vary as well. For the most part monthly payments on your fixed-rate loan will be very stable.

When you first take out a fixed-rate mortgage loan, most of the payment goes toward interest. That gradually reverses as the loan ages.

Borrowers can choose a fixed-rate loan to lock in a low rate. People choose fixed-rate loans when interest rates are low and they want to lock in at the lower rate. For homeowners who have an ARM now, refinancing into a fixed-rate loan can provide greater consistency in monthly payments. If you currently have an Adjustable Rate Mortgage (ARM), we'll be glad to assist you in locking a fixed-rate at the best rate currently available. Call Agape Mortgages Inc at 503-253-3299 to discuss how we can help.

There are many types of Adjustable Rate Mortgages. ARMs are generally adjusted every six months, based on various indexes.

Most programs have a cap that protects borrowers from sudden monthly payment increases. 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 will not go above a fixed amount over the course of a given year. The majority of ARMs also cap your rate over the life of the loan.

ARMs usually start out at a very low rate that usually increases over time. You may hear people talking about "3/1 ARMs" or "5/1 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 they adjust. Loans like this are usually best for borrowers who anticipate moving in three or five years. These types of adjustable rate programs benefit people who will move before the initial lock expires.

You might choose an Adjustable Rate Mortgage to take advantage of a very low initial interest rate and count on moving, refinancing or absorbing the higher rate after the introductory rate goes up. ARMs can be risky when housing prices go down because homeowners can get stuck with rates that go up when they can't sell their home or refinance with a lower property value.

Have questions about mortgage loans? Call us at 503-253-3299. We answer questions about different types of loans every day.

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