Fixed versus adjustable rate loans
A fixed-rate loan features the same payment for the entire duration of the mortgage. The property taxes and homeowners insurance will increase over time, but generally, payments on fixed rate loans change little over the life of the loan.
Your first few years of payments on a fixed-rate loan are applied mostly toward interest. The amount applied to principal goes up slowly every month.
You might choose a fixed-rate loan in order to lock in a low interest rate. People select fixed-rate loans when interest rates are low and they want to lock in at the low rate. If you have an Adjustable Rate Mortgage (ARM) now, refinancing with a fixed-rate loan can offer greater monthly payment stability. If you have an Adjustable Rate Mortgage (ARM) now, we'd love to assist you in locking a fixed-rate at the best rate currently available. Call Hancock Mortgage Partners, LLC NMLS# 229844 at 225 819 7670 to learn more.
There are many different kinds of Adjustable Rate Mortgages. ARMs usually adjust every six months, based on various indexes.
The majority of ARMs feature this cap, which means they won't go up over a specified amount in a given period of time. There may be a cap on interest rate variances over the course of a year. For example: no more than a couple percent per year, even if the underlying index goes up by more than two percent. Sometimes an ARM features a "payment cap" which guarantees your payment will not go above a certain amount in a given year. Almost all ARMs also cap your rate over the life of the loan.
ARMs most often feature their lowest, most attractive rates at the beginning. They provide the lower interest rate for an initial period that varies greatly. You've likely heard of 5/1 or 3/1 ARMs. For these loans, the initial rate is fixed for three or five years. It then adjusts every year. These loans are fixed for 3 or 5 years, then adjust. Loans like this are often best for people who expect to move in three or five years. These types of ARMs are best for people who plan to move before the initial lock expires.
Most borrowers who choose ARMs choose them because they want to take advantage of lower introductory rates and do not plan on remaining in the house for any longer than this initial low-rate period. ARMs are risky when property values go down and borrowers are unable to sell or refinance their loan.
Have questions about mortgage loans? Call us at 225 819 7670. It's our job to answer these questions and many others, so we're happy to help!