Differences between fixed and adjustable rate loans

A fixed-rate loan features the same payment for the entire duration of your mortgage. Your property taxes increase, or rarely, decrease, and your insurance rates might vary as well. For the most part payments on your fixed-rate mortgage will increase very little.

Your first few years of payments on a fixed-rate loan go mostly toward interest. As you pay , more of your payment goes toward principal.

You can choose a fixed-rate loan in order to lock in a low interest rate. Borrowers select fixed-rate loans because interest rates are low and they want to lock in the low rate. If you have an Adjustable Rate Mortgage (ARM) now, refinancing with a fixed-rate loan can offer greater consistency in monthly payments. If you currently have an Adjustable Rate Mortgage (ARM), we'll be glad to assist you in locking a fixed-rate at a good rate. Call MS Investment Mortgage Company at (858) 485-5800 for details.

There are many types of Adjustable Rate Mortgages. ARMs are normally adjusted twice a year, based on various indexes.

Most Adjustable Rate Mortgages feature this cap, so they won't go up over a specified amount in a given period. Your ARM may feature a cap on how much your interest rate can go up in one period. For example: no more than a couple percent per year, even though the underlying index increases by more than two percent. Sometimes an ARM has a "payment cap" which ensures your payment can't go above a fixed amount over the course of a given year. In addition, the great majority of ARM programs have a "lifetime cap" — this cap means that your rate can't ever exceed the cap amount.

ARMs usually start at a very low rate that usually increases as the loan ages. 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. It then adjusts every year. These loans are fixed for 3 or 5 years, then adjust. These loans are best for borrowers who anticipate moving within three or five years. These types of adjustable rate programs 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 initial interest rate and count on moving, refinancing or absorbing the higher rate after the introductory rate goes up. ARMs can be risky in a down market because homeowners could be stuck with increasing rates when they can't sell or refinance at the lower property value.

Have questions about mortgage loans? Call us at (858) 485-5800. We answer questions about different types of loans every day.