Fixed versus adjustable rate loans

A fixed-rate loan features a fixed payment over the life of your mortgage. The property taxes and homeowners insurance will go up over time, but for the most part, payments on these types of loans vary little.

Early in a fixed-rate loan, most of your payment goes toward interest, and a significantly smaller percentage toward principal. As you pay on the loan, more of your payment is applied to principal.

You might choose a fixed-rate loan to lock in a low rate. People choose these types of loans because interest rates are low and they wish to lock in the lower rate. For homeowners who have an ARM now, refinancing with a fixed-rate loan can offer greater stability in monthly payments. If you currently have an Adjustable Rate Mortgage (ARM), we'll be glad to help you lock in a fixed-rate at the best rate currently available. Call Chase Mortgage at 435-755-6622 for details.

Adjustable Rate Mortgages — ARMs, come in a great number of varieties. ARMs usually adjust twice a year, based on various indexes.

Most Adjustable Rate Mortgages are capped, which means they won't increase above a specific 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 feature a "payment cap" that instead of capping the interest rate directly, caps the amount that the payment can go up in a given period. The majority of ARMs also cap your interest rate over the duration of the loan period.

ARMs most often have their lowest, most attractive rates at the start of the loan. They guarantee that interest rate from a month to ten years. You've likely read about 5/1 or 3/1 ARMs. In these loans, the introductory rate is set for three or five years. It then adjusts every year. These kinds of loans are fixed for 3 or 5 years, then they adjust after the initial period. These loans are best for people who expect to move in three or five years. These types of ARMs benefit people who plan to move before the loan adjusts.

Most borrowers who choose ARMs do so because they want to get lower introductory rates and don't plan to remain in the house for any longer than the introductory low-rate period. ARMs can be risky if property values go down and borrowers can't sell or refinance their loan.

Have questions about mortgage loans? Call us at 435-755-6622. We answer questions about different types of loans every day.