Fixed versus adjustable loans
With a fixed-rate loan, your payment stays the same for the life of the mortgage. The amount that goes for your principal (the amount you borrowed) will increase, but the amount you pay in interest will go down accordingly. The property taxes and homeowners insurance which are almost always part of the payment will increase over time, but for the most part, payment amounts on fixed rate loans change little over the life of the loan.
When you first take out a fixed-rate loan, the majority your payment is applied to interest. This proportion gradually reverses as the loan ages.
Borrowers might choose a fixed-rate loan in order to lock in a low interest rate. People select fixed-rate loans because interest rates are low and they want to lock in at this lower rate. For homeowners who have an ARM now, refinancing with a fixed-rate loan can provide more consistency in monthly payments. 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 Colorado Mortgage Company at 719-357-6601 to learn more.
Adjustable Rate Mortgages — ARMs, come in even more varieties. ARMs usually adjust every six months, based on various indexes.
The majority of ARMs feature this cap, which means they can't go up over a certain amount in a given period. Some ARMs won't increase more than two percent per year, regardless of the underlying interest rate. Sometimes an ARM has a "payment cap" which guarantees your payment will not increase beyond a certain amount over the course of a given year. Most ARMs also cap your interest rate over the duration of the loan.
ARMs most often have their lowest, most attractive rates toward the beginning. They usually guarantee the lower interest rate for an initial period that varies greatly. You've likely heard of 5/1 or 3/1 ARMs. In these loans, the initial rate is set for three or five years. After this period it adjusts every year. These kinds of loans are fixed for 3 or 5 years, then adjust after the initial period. Loans like this are often best for borrowers who anticipate moving in three or five years. These types of ARMs benefit people who will sell their house or refinance before the initial lock expires.
Most borrowers who choose ARMs choose them because they want to get lower introductory rates and do not plan on staying in the home longer than this initial low-rate period. ARMs can be risky when property values go down and borrowers cannot sell their home or refinance their loan.
The All In One™— Colorado Mortgage Company is proud to offer the proprietary All In One Loan™, the only mortgage product where payments are applied to daily principal balance FIRST - which lowers monthly interest payments (ARM) and accelerates home pay-off. The loan acts as your mortgage, checking and savings all in one account, hence the name, and is widely used in the UK and Australia, but is not widely known in the US. With rising interest rates, this loan is largely rate resistant. The All In One Loan™ solves the issues of 1- Borrowers looking for ways to improve their financial health and 2- Mortgage interest impeding progress with household savings needs. Call us today to find out if you qualify and to learn more at 719-357-6601
Have questions about mortgage loans? Call us at 719-357-6601. It's our job to answer these questions and many others, so we're happy to help!