Let’s say you have a Mission Viejo home loan and it has an adjustable rate. Normally the rate is fixed for a few years and then adjust upwards.
With a fixed-rate loan, your monthly payment never changes for the entire duration of your mortgage. This is most common referred to as a 30 year 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. But generally payment amounts for a fixed-rate mortgage will increase very little.
When you first take out a fixed-rate loan, the majority your payment goes toward interest. As you pay , more of your payment is applied to principal.
You might choose a fixed-rate loan to lock in a low rate. People select fixed-rate loans because interest rates are low and they want to lock in this low rate. For homeowners who have an ARM now, refinancing into a fixed-rate loan can provide more monthly payment stability. If you currently have an Adjustable Rate Mortgage (ARM), we’d love to assist you in locking a fixed-rate at the best rate currently available. Call Unlimited Mortgage Solutions at 877-244-9190 for details.
There are many kinds of Adjustable Rate Mortgages. Generally, interest rates on 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.
ARM’s are a great way to go
Most Adjustable rate loans programs have a cap that protects you from sudden increases in monthly payments. Some ARMs won’t adjust more than two percent per year, regardless of the underlying interest rate.
Sometimes an ARM has a “payment cap” which ensures your payment won’t increase beyond a certain amount over the course of a given year. The majority of ARMs also cap your interest rate over the duration of the loan.
ARMs usually start at a very low rate that may increase as the loan ages. You’ve probably heard of 5/1 or 3/1 ARMs. For these loans, the initial rate is fixed for three or five years. It then adjusts every year. These loans are fixed for 3 or 5 years, then they adjust. These loans are best for people who anticipate moving within three or five years. These types of adjustable rate programs are best for borrowers who plan to move before the initial lock expires.
If you have an Irvine mortgage about to adjust up in rate, it may be time to do a mortgage refinance Irvine and either go to a fixed rate or even a new lower adjustable rate loan again.
You might choose an ARM to take advantage of a very low initial rate and plan on moving, refinancing or absorbing the higher rate after the initial rate goes up. ARMs can be risky if property values go down and borrowers cannot sell or refinance their loan.