Differences between fixed and adjustable loans

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With a fixed-rate loan, your monthly payment remains the same for the entire duration of your loan. The longer you pay, the more of your payment goes toward principal. Your property taxes increase, or rarely, decrease, and your insurance rates might vary as well. But generally payments on a fixed-rate mortgage will be very stable.

Early in a fixed-rate loan, most of your payment goes toward interest, and a significantly smaller part toward principal. The amount applied to principal goes up slowly every month.

You can choose a fixed-rate loan in order to lock in a low rate. Borrowers select these types of loans when interest rates are low and they want to lock in this low rate. For homeowners who have an ARM now, refinancing with a fixed-rate loan can offer greater monthly payment stability. If you have an Adjustable Rate Mortgage (ARM) now, we'd love to assist you in locking a fixed-rate at the best rate currently available. Call HENRY MUNOZ LOAN OFFICER & SOUTH BAY EQUITY LENDING at 3105133942 to learn more.

There are many different kinds of Adjustable Rate Mortgages. Generally, interest rates for ARMs are based on an outside index. Some examples of outside indexes are: the 6-month CD rate, the 1 year rate on Treasure Securities, the Federal Home Loan Bank's 11th District Cost of Funds Index (COFI), or others.

Most ARM programs feature a cap that protects you from sudden increases in monthly payments. Some ARMs won't increase more than 2% per year, regardless of the underlying interest rate. Sometimes an ARM features a "payment cap" which ensures that your payment can't increase beyond a certain amount in a given year. In addition, the great majority of ARMs have a "lifetime cap" — this means that your rate can't go over the cap percentage.

ARMs most often have the lowest rates toward the start. They provide that rate for an initial period that varies greatly. You've likely read about 5/1 or 3/1 ARMs. In these loans, the initial rate is fixed for three or five years. After this period it adjusts every year. These loans are fixed for a number of years (3 or 5), then they adjust after the initial period. Loans like this are usually best for borrowers who anticipate moving within three or five years. These types of adjustable rate loans benefit borrowers who will sell their house or refinance before the initial lock expires.

You might choose an ARM to get a very low initial rate and count on moving, refinancing or simply absorbing the higher rate after the introductory rate expires. ARMs can be risky in a down market because homeowners could be stuck with rates that go up if they cannot sell their home or refinance with a lower property value.

Have questions about mortgage loans? Call Henry Munoz at 310-975-9739. It's my job to answer these questions.Each borrower,goals and credit are all very different.I will spend time with you to review all options.

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