Differences between fixed and adjustable rate loans

A fixed-rate loan features the same payment amount over the life of the mortgage. Your property taxes may go up (or rarely, down), and your insurance rates might vary as well. For the most part payment amounts for a fixed-rate mortgage will be very stable.

During the early amortization period of a fixed-rate loan, most of your monthly payment goes toward interest, and a much smaller percentage goes to principal. The amount applied to your principal amount goes up slowly every month.

You might choose a fixed-rate loan to lock in a low interest rate. People choose these types of loans when interest rates are low and they wish to lock in this low rate. For homeowners who have an ARM now, refinancing with a fixed-rate loan can provide more monthly payment stability. If you have an Adjustable Rate Mortgage (ARM) now, we'll be glad to assist you in locking a fixed-rate at a good rate. Call Riviera Funding NMLS#861382 CA DRE Broker #01186669 at 3103737406 for details.

Adjustable Rate Mortgages — ARMs, come in even more varieties. ARMs usually adjust every six months, based on various indexes.

Most Adjustable Rate Mortgages are capped, which means they can't go up above a specified amount in a given period. Your ARM may feature a cap on how much your interest rate can increase in one period. For example: no more than two percent a year, even if the index the rate is based on goes up by more than two percent. Your loan may have a "payment cap" that instead of capping the interest rate directly, caps the amount the monthly payment can increase in a given period. Most ARMs also cap your rate over the life of the loan.

ARMs most often have their lowest, most attractive rates toward the start. They guarantee the lower interest rate for an initial period that varies greatly. You may hear people talking about "3/1 ARMs" or "5/1 ARMs". For these loans, the introductory rate is fixed for three or five years. After this period it adjusts every year. These kinds of loans are fixed for 3 or 5 years, then they adjust. Loans like this are best for borrowers who anticipate moving in three or five years. These types of adjustable rate loans most benefit people who plan to sell their house or refinance before the initial lock expires.

You might choose an Adjustable Rate Mortgage to get a lower introductory rate and plan on moving, refinancing or absorbing the higher rate after the initial rate goes up. ARMs can be risky when housing prices go down because homeowners could be stuck with rates that go up if they cannot sell or refinance with a lower property value.

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!