Adjustable versus fixed loans

A fixed-rate loan features the same payment over the life of your loan. Your property taxes may go up (or rarely, down), and so might the homeowner's insurance in your monthly payment. But generally monthly payments for your fixed-rate mortgage will increase very little.

Early in a fixed-rate loan, a large percentage of your monthly payment pays interest, and a significantly smaller percentage goes to principal. That gradually reverses itself as the loan ages.

You can choose a fixed-rate loan in order to lock in a low interest rate. People select fixed-rate loans because interest rates are low and they wish to lock in the low rate. If you have an Adjustable Rate Mortgage (ARM) now, refinancing with a fixed-rate loan can provide more monthly payment stability. 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 Tenby J. Dahman at (303) 862-7760 for details.

There are many different kinds of Adjustable Rate Mortgages. ARMs are generally adjusted twice a year, based on various indexes.

Most ARM programs have a cap that protects you from sudden monthly payment increases. Some ARMs can't increase more than 2% per year, regardless of the underlying interest rate. Sometimes an ARM has a "payment cap" that ensures that your payment will not go above a fixed amount in a given year. Most ARMs also cap your rate over the life of the loan.

ARMs most often feature the lowest rates at the start. They guarantee that interest rate from a month to ten years. You may have heard about "3/1 ARMs" or "5/1 ARMs". In these loans, the initial rate is set 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 after the initial period. These loans are usually best for borrowers who expect to move within three or five years. These types of adjustable rate loans most benefit people who plan to move before the initial lock expires.

Most people who choose ARMs choose them when they want to get lower introductory rates and don't plan on staying in the home for any longer than this initial low-rate period. ARMs are risky if property values go down and borrowers cannot sell their home or refinance their loan.

Have questions about mortgage loans? Call us at (303) 862-7760. We answer questions about different types of loans every day.