Fixed versus adjustable loans

With a fixed-rate loan, your payment never changes for the life of your mortgage. The portion allocated for principal (the loan amount) will increase, but your interest payment will go down accordingly. The property tax and homeowners insurance will increase over time, but generally, payment amounts on these types of loans change little over the life of the loan.

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

Borrowers might choose a fixed-rate loan in order to lock in a low interest rate. Borrowers select fixed-rate loans when interest rates are low and they wish to lock in the low rate. For homeowners who have an ARM now, refinancing into a fixed-rate loan can offer greater monthly payment stability. If you have an Adjustable Rate Mortgage (ARM) now, we can assist you in locking a fixed-rate at the best rate currently available. Call Ward Kilduff Mortgage at (860) 658-7100 to discuss your situation with one of our professionals.

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

Most ARMs feature this cap, so they can't go up over a certain amount in a given period of time. Some ARMs won't increase 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 your payment can increase in a given period. Plus, the great majority of adjustable programs have a "lifetime cap" — your interest rate can't exceed the capped amount.

ARMs usually start out at a very low rate that usually increases as the loan ages. You may have heard about "3/1 ARMs" or "5/1 ARMs". In these loans, the introductory rate is fixed for three or five years. It then adjusts every year. These types of loans are fixed for a number of years (3 or 5), then they adjust. Loans like this are usually best for borrowers who anticipate moving in three or five years. These types of adjustable rate loans most benefit people who will move before the initial lock expires.

You might choose an Adjustable Rate Mortgage to take advantage of a lower introductory interest rate and plan on moving, refinancing or absorbing the higher rate after the introductory rate goes up. ARMs can be risky if property values go down and borrowers can't sell their home or refinance their loan.

Have questions about mortgage loans? Call us at (860) 658-7100. It's our job to answer these questions and many others, so we're happy to help!

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