Differences between fixed and adjustable loans

With a fixed-rate loan, your monthly payment never changes for the entire duration of the loan. The amount allocated for principal (the amount you borrowed) will go up, however, the amount you pay in interest will go down accordingly. Your property taxes increase, or rarely, decrease, and your insurance rates might vary as well. For the most part payment amounts on a fixed-rate mortgage will be very stable.

At the beginning of a a fixed-rate loan, most of your payment goes toward interest. The amount paid toward principal goes up gradually every month.

You 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 this lower rate. For homeowners who have an ARM now, refinancing into a fixed-rate loan can offer greater monthly payment stability. If you have an Adjustable Rate Mortgage (ARM) now, we'd love to help you lock in a fixed-rate at the best rate currently available. Call Halpern & Associates Mortgage Corporation at (305) 535-2230 for details.

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

The majority of ARMs are capped, so they can't go up above a certain amount in a given period of time. Some ARMs can't adjust more than 2% per year, regardless of the underlying interest rate. Your loan may have a "payment cap" that instead of capping the interest rate directly, caps the amount the payment can go up in a given period. Plus, the great majority of ARMs feature a "lifetime cap" — your rate can't ever exceed the capped percentage.

ARMs usually start at a very low rate that may increase as the loan ages. You've likely heard of 5/1 or 3/1 ARMs. For these loans, the initial rate is set for three or five years. After this period it adjusts every year. These loans are fixed for 3 or 5 years, then they adjust after the initial period. Loans like this are best for borrowers who expect to move within three or five years. These types of adjustable rate programs most benefit borrowers who will sell their house or refinance before the initial lock expires.

You might choose an Adjustable Rate Mortgage to take advantage of a lower introductory rate and count on moving, refinancing or absorbing the higher rate after the initial rate goes up. ARMs can be risky in a down market because homeowners could be stuck with increasing rates if they can't sell or refinance with a lower property value.

Have questions about mortgage loans? Call us at (305) 535-2230. It's our job to answer these questions and many others, so we're happy to help!

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