Differences between adjustable and fixed loans

With a fixed-rate loan, your monthly payment never changes for the life of the mortgage. The longer you pay, the more of your payment goes toward principal. Your property taxes may go up (or rarely, down), and your insurance rates might vary as well. But generally monthly payments on your fixed-rate mortgage will increase very little.

Early in a fixed-rate loan, a large percentage of your payment pays interest, and a much smaller percentage goes to principal. The amount applied to your principal amount goes up slowly every month.

You can choose a fixed-rate loan to lock in a low rate. Borrowers choose these types of loans because interest rates are low and they want to lock in this low rate. For homeowners who have an ARM now, refinancing into a fixed-rate loan can provide greater stability in monthly payments. 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 Riviera Funding NMLS#861382 CA DRE Broker #01186669 at 3103737406 to discuss your situation with one of our professionals.

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

Most ARM programs have a "cap" that protects you from sudden increases in monthly payments. 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 monthly payment can increase in one period. Almost all ARMs also cap your interest rate over the duration of the loan period.

ARMs most often have their lowest rates toward the beginning. They provide that rate from a month to ten years. You may hear people talking about "3/1 ARMs" or "5/1 ARMs". For these loans, the initial rate is fixed for three or five years. After this period it adjusts every year. These types of loans are fixed for a certain number of years (3 or 5), then they adjust. Loans like this are best for people who expect to move within three or five years. These types of adjustable rate loans most benefit people who will sell their house or refinance before the initial lock expires.

Most people who choose ARMs do so when they want to get lower introductory rates and do not plan on remaining in the home longer than this initial low-rate period. ARMs are risky if property values go down and borrowers can't sell or refinance.

Have questions about mortgage loans? Call us at 3103737406. It's our job to answer these questions and many others, so we're happy to help!