Differences between fixed and adjustable rate loans

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With a fixed-rate loan, your monthly payment stays the same for the entire duration of your mortgage. The longer you pay, the more of your payment goes toward principal. Your property taxes increase, or rarely, decrease, and so might the homeowner's insurance in your monthly payment. For the most part monthly payments on a fixed-rate mortgage will be very stable.

At the beginning of a a fixed-rate mortgage loan, most of the payment is applied to interest. As you pay on the loan, more of your payment is applied to principal.

Borrowers might choose a fixed-rate loan to lock in a low rate. Borrowers select these types of loans because interest rates are low and they want to lock in at the lower rate. If you have an Adjustable Rate Mortgage (ARM) now, refinancing with a fixed-rate loan can offer greater stability in monthly payments. If you have an Adjustable Rate Mortgage (ARM) now, we can assist you in locking a fixed-rate at a good rate. Call Premier Lending, LLC at (504) 212-0704 for details.

Adjustable Rate Mortgages — ARMs, come in a great number of varieties. ARMs usually adjust every six months, based on various indexes.

Most programs feature a "cap" that protects borrowers from sudden monthly payment increases. Some ARMs can't increase more than two percent per year, regardless of the underlying interest rate. Your loan may feature a "payment cap" that instead of capping the interest directly, caps the amount that the monthly payment can go up in one period. Additionally, the great majority of ARM programs feature a "lifetime cap" — this means that the rate can't ever go over the capped percentage.

ARMs usually start at a very low rate that usually increases over time. You've likely read about 5/1 or 3/1 ARMs. In these loans, the initial rate is fixed for three or five years. After this period it adjusts every year. These loans are fixed for a certain number of years (3 or 5), then they adjust. These loans are best for borrowers who anticipate moving in three or five years. These types of ARMs most benefit borrowers who will sell their house or refinance before the initial lock expires.

You might choose an ARM to take advantage of a very low introductory rate and count on moving, refinancing or simply absorbing the higher rate after the introductory rate expires. ARMs are risky if property values go down and borrowers cannot sell or refinance their loan.

Have questions about mortgage loans? Call us at (504) 212-0704. We answer questions about different types of loans every day.

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