Fixed versus adjustable rate loans

A fixed-rate loan features the same payment amount for the entire duration of the mortgage. The property taxes and homeowners insurance will go up over time, but for the most part, payment amounts on fixed rate loans don't increase much.

At the beginning of a a fixed-rate mortgage loan, the majority the payment is applied to interest. That reverses itself as the loan ages.

Borrowers might choose a fixed-rate loan to lock in a low interest rate. People select these types of loans when interest rates are low and they wish to lock in at the lower rate. For homeowners who have an ARM now, refinancing with a fixed-rate loan can provide more stability 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 Patricia Kotz at 970-984-2766 for details.

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

Most ARM programs have a cap that protects you from sudden increases in monthly payments. Your ARM may feature a cap on interest rate variances over the course of a year. For example: no more than two percent a year, even though the index the rate is based on goes up by more than two percent. Sometimes an ARM features a "payment cap" which ensures your payment will not go above a certain amount in a given year. Most ARMs also cap your rate over the life of the loan period.

ARMs usually start at a very low rate that usually increases over time. You may have heard about "3/1 ARMs" or "5/1 ARMs". In 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 3 or 5 years, then they adjust after the initial period. Loans like this are best for people who anticipate moving within three or five years. These types of adjustable rate loans are best for people who plan to move before the initial lock expires.

Most borrowers who choose ARMs do so because they want to take advantage of lower introductory rates and do not plan to stay in the house longer than this initial low-rate period. 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 at the lower property value.

Have questions about mortgage loans? Call us at 970-984-2766. It's our job to answer these questions and many others, so we're happy to help!