Adjustable versus fixed loans

With a fixed-rate loan, your monthly payment remains the same 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 so might the homeowner's insurance in your monthly payment. But generally payments for your fixed-rate loan will be very stable.

Your first few years of payments on a fixed-rate loan go primarily to pay interest. The amount paid toward principal increases up gradually every month.

You might choose a fixed-rate loan to lock in a low interest rate. People select fixed-rate loans when 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 offer more stability in monthly payments. If you have an Adjustable Rate Mortgage (ARM) now, we'd love to help you lock in a fixed-rate at a good rate. Call Riviera Funding NMLS#861382 CA DRE Broker #01186669 at 3103737406 to learn more.

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

The majority of ARMs feature this cap, which means they can't go up over a certain amount in a given period of time. Some ARMs can't adjust more than two percent per year, regardless of the underlying interest rate. Your loan may have a "payment cap" that instead of capping the interest directly, caps the amount that your payment can increase in a given period. Plus, the great majority of ARMs feature a "lifetime cap" — the interest rate won't go over the cap percentage.

ARMs usually start out at a very low rate that usually increases as the loan ages. You've probably 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 3 or 5 years, then adjust. These loans are often best for borrowers who expect to move within three or five years. These types of adjustable rate programs benefit borrowers who will move before the loan adjusts.

You might choose an ARM to get a lower introductory interest rate and count on moving, refinancing or absorbing the higher rate after the introductory rate expires. ARMs can be risky when property values go down and borrowers can't sell their home or refinance their loan.

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!