Differences between fixed and adjustable rate loans

	In the market for a new mortgage loan? We can assist you! Call us at (215)741-3131. Ready to get started? Apply Here.

With a fixed-rate loan, your payment never changes for the entire duration of your mortgage. The longer you pay, the more of your payment goes toward principal. The property taxes and homeowners insurance will go up over time, but in general, payments on fixed rate loans vary little.

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

You might choose a fixed-rate loan in order to lock in a low rate. People select these types of loans because interest rates are low and they want to lock in this lower rate. For homeowners who have an ARM now, refinancing into 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 a good rate. Call Net Equity Financial at (215)741-3131 to discuss how we can help.

Adjustable Rate Mortgages — ARMs, as we called them above — come in even more varieties. ARMs usually adjust every six months, based on various indexes.

Most ARM programs feature a cap that protects borrowers from sudden increases in monthly payments. Some ARMs won't adjust more than 2% per year, regardless of the underlying interest rate. Sometimes an ARM has a "payment cap" that guarantees that your payment will not go above a fixed amount over the course of a given year. Almost all ARMs also cap your rate over the duration of the loan.

ARMs most often feature their lowest rates toward the start. They usually guarantee that interest rate from a month to ten years. You may hear people talking about "3/1 ARMs" or "5/1 ARMs". For these loans, the initial rate is set for three or five years. After this period it adjusts every year. These loans are fixed for 3 or 5 years, then they adjust. These loans are often best for people who anticipate moving within three or five years. These types of ARMs benefit people who will sell their house or refinance before the initial lock expires.

You might choose an Adjustable Rate Mortgage to take advantage of a very low introductory rate and plan on moving, refinancing or simply absorbing the higher rate after the introductory rate goes up. ARMs are risky if property values go down and borrowers cannot sell their home or refinance.

Have questions about mortgage loans? Call us at (215)741-3131. It's our job to answer these questions and many others, so we're happy to help!