Fixed versus adjustable rate loans

With a fixed-rate loan, your payment remains the same for the entire duration of your loan. The longer you pay, the more of your payment goes toward principal. The property tax and homeowners insurance which are almost always part of the payment will increase over time, but generally, payments on fixed rate loans don't increase much.

Your first few years of payments on a fixed-rate loan are applied mostly toward interest. The amount applied to your principal amount increases up slowly each month.

Borrowers can choose a fixed-rate loan to lock in a low rate. Borrowers select these types of loans when interest rates are low and they want to lock in at this low rate. For homeowners who have an ARM now, refinancing into a fixed-rate loan can offer greater stability in monthly payments. If you have an Adjustable Rate Mortgage (ARM) now, we can help you lock in a fixed-rate at a favorable rate. Call Family Mortgage Company of Hawaii, Inc. NMLS #244497 at (808) 935-0678 for details.

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

Most Adjustable Rate Mortgages are capped, which means they can't go up above a specified amount in a given period. Some ARMs can't adjust more than 2% per year, regardless of the underlying interest rate. Sometimes an ARM features a "payment cap" that guarantees your payment won't increase beyond a fixed amount in a given year. Plus, almost all adjustable programs have a "lifetime cap" — this means that your rate can't go over the cap percentage.

ARMs most often have the lowest rates at the beginning. They usually provide 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. After this period it adjusts every year. These loans are fixed for a certain number of years (3 or 5), then they adjust. Loans like this are best for people who expect to move within three or five years. These types of ARMs benefit borrowers who will move before the loan adjusts.

Most people who choose ARMs choose them when they want to take advantage of lower introductory rates and do not plan on remaining in the house longer than the introductory low-rate period. ARMs are risky if property values go down and borrowers cannot sell their home or refinance.

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

Got a Question?

Do you have a question? We can help. Simply fill out the form below and we'll contact you with the answer, with no obligation to you. We guarantee your privacy.

Your Information
Your Question