Differences between fixed and adjustable loans

With a fixed-rate loan, your monthly payment never changes for the entire duration 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. For the most part monthly payments for a fixed-rate loan will increase very little.

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

Borrowers can choose a fixed-rate loan to lock in a low rate. People select fixed-rate loans because interest rates are low and they wish to lock in this low rate. For homeowners who have an ARM now, refinancing into a fixed-rate loan can provide greater stability in monthly payments. If you have an Adjustable Rate Mortgage (ARM) now, we'll be glad to help you lock in a fixed-rate at a good rate. Call Family Mortgage Company of Hawaii, Inc. NMLS #244497 at (808) 935-0678 for details.

There are many types of Adjustable Rate Mortgages. ARMs usually adjust every six months, based on various indexes.

Most ARMs feature this cap, which means they won't go up over a certain amount in a given period of time. There may be a cap on how much your interest rate can go up in one period. For example: no more than two percent a year, even though the underlying index increases by more than two percent. Your loan may feature a "payment cap" that instead of capping the interest rate directly, caps the amount that the monthly payment can go up in one period. The majority of ARMs also cap your rate over the life of the loan.

ARMs most often have the lowest rates toward the beginning. They provide that interest rate from a month to ten years. You've likely heard of 5/1 or 3/1 ARMs. In these loans, the initial rate is fixed for three or five years. It then adjusts every year. These kinds of loans are fixed for 3 or 5 years, then adjust. Loans like this are often best for people who expect to move in three or five years. These types of ARMs are best for people who plan to move before the loan adjusts.

Most borrowers who choose ARMs choose them when they want to get lower introductory rates and do not plan to stay in the home longer than this initial low-rate period. ARMs are risky if property values go down and borrowers are unable to sell or refinance.

Have questions about mortgage loans? Call us at (808) 935-0678. We answer questions about different types of loans every day.

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