|
What are the advantages of fixed rate versus adjustable rate loans?
With a fixed-rate loan, your monthly payment of principal and interest never change for the life of your loan. Your property taxes may go up (we almost said down, too!), and so might your homeowner's insurance premium part of your monthly payment, but generally with a fixed-rate loan your payment will be very stable.
Fixed-rate loans are available in all sorts of shapes and sizes: 30-year, 20-year, 15-year, even 10-year. Some fixed-rate mortgages are called "biweekly" mortgages and shorten the life of your loan. You pay every two weeks, a total of 26 payments a year -- which adds up to an "extra" monthly payment every year. Looking for a way to calculate this?
During the early amortization period of a fixed-rate loan, a large percentage of your monthly payment goes toward interest, and a much smaller part toward principal. That gradually reverses itself as the loan ages. This is why interest-only loans appeal to some of our customers.
100,000 30 year fixed mortgage @ 7.000% shown in 30 annual segments
You might choose a fixed-rate loan if you want to lock in a low rate. If you have an Adjustable Rate Mortgage (ARM) now, refinancing with a fixed-rate loan can give you more monthly payment stability.
Adjustable Rate Mortgages -- ARMs, as we called them above -- come in even more varieties. Generally, ARMs determine what you must pay based on an outside index:
| Common ARM indices: | | 6-month Certificate of Deposit (CD) rate | | One-year Treasury Security rate | | Fed 11th District Cost of Funds (COFI) | | Cost of Savings Index (COSI) | | Monthly US Treasury Bill Average (MTA) | | London Interbank Offered Rate (LIBOR) | | Federal Reserve Prime Rate | | Constant Maturity Treasury (CMT) |
80% of all ARMS are based on either LIBOR, COSI or CMT Want to know more about "fixing" your ARM? Go here.
If you would like to discuss the individual positives and negatives of an ARM in your situation with a specialist, please fill out the form below.
|
