Adjustable versus fixed rate loans

With a fixed-rate loan, your monthly payment stays the same for the life of the mortgage. 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. For the most part monthly payments for a fixed-rate mortgage will increase very little.

When you first take out a fixed-rate mortgage loan, most of your payment goes toward interest. That reverses itself as the loan ages.

Borrowers can choose a fixed-rate loan to lock in a low interest rate. Borrowers select these types of loans because interest rates are low and they want to lock in at the lower rate. For homeowners who have an ARM now, refinancing with a fixed-rate loan can offer greater monthly payment stability. If you currently have an Adjustable Rate Mortgage (ARM), we'll be glad to assist you in locking a fixed-rate at the best rate currently available. Call Baywide Funding Corporation at 650 428 0234 to learn more.

Adjustable Rate Mortgages — ARMs, come in many varieties. ARMs are generally adjusted twice a year, based on various indexes.

Most Adjustable Rate Mortgages feature this cap, so they won't increase above a certain amount in a given period of time. Some ARMs can't increase more than 2% per year, regardless of the underlying interest rate. Your loan may feature a "payment cap" that instead of capping the interest directly, caps the amount the monthly payment can go up in a given period. Almost all ARMs also cap your rate over the duration of the loan period.

ARMs usually start out at a very low rate that may increase over time. You've likely read about 5/1 or 3/1 ARMs. For these loans, the introductory rate is fixed for three or five years. It then adjusts every year. These loans are fixed for a certain number of years (3 or 5), then adjust after the initial period. Loans like this are often best for borrowers who expect to move within three or five years. These types of ARMs most benefit borrowers who will sell their house or refinance before the initial lock expires.

Most people who choose ARMs do so when they want to get lower introductory rates and don't plan to remain in the house for any longer than the introductory low-rate period. ARMs can be risky when housing prices go down because homeowners could be stuck with increasing rates when they cannot sell their home or refinance at the lower property value.

Have questions about mortgage loans? Call us at 650 428 0234. It's our job to answer these questions and many others, so we're happy to help!