Fixed versus adjustable loans

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With a fixed-rate loan, your monthly payment stays the same for the life of the loan. The amount that goes for principal (the actual loan amount) will increase, however, the amount you pay in interest will decrease in the same amount. The property tax and homeowners insurance which are almost always part of the payment will go up over time, but generally, payment amounts on these types of loans change little over the life of the loan.

During the early amortization period of a fixed-rate loan, a large percentage of your monthly payment goes toward interest, and a significantly smaller percentage goes to principal. This proportion gradually reverses itself as the loan ages.

Borrowers can choose a fixed-rate loan to lock in a low rate. Borrowers select fixed-rate loans because interest rates are low and they wish to lock in this low rate. If you have an Adjustable Rate Mortgage (ARM) now, refinancing with a fixed-rate loan can provide greater monthly payment stability. If you have an Adjustable Rate Mortgage (ARM) now, we'll be glad to assist you in locking a fixed-rate at the best rate currently available. Call G & M Wolkenberg Inc. at 516 536-2525 to learn more.

Adjustable Rate Mortgages — ARMs, come in a great number of varieties. ARMs are normally adjusted every six months, based on various indexes.

Most ARMs are capped, so they can't go up above a certain amount in a given period. 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 can't go above a fixed amount in a given year. In addition, the great majority of ARMs feature a "lifetime cap" — this cap means that your interest rate can't go over the cap percentage.

ARMs most often have their lowest, most attractive rates at the beginning. They guarantee that rate from a month to ten years. You've probably read about 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 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 loans are best for borrowers who will sell their house or refinance before the loan adjusts.

You might choose an Adjustable Rate Mortgage to take advantage of a very low introductory interest rate and plan on moving, refinancing or simply absorbing the higher rate after the introductory rate expires. ARMs can be risky when housing prices go down because homeowners could be stuck with rates that go up when they can't sell or refinance at the lower property value.

Have questions about mortgage loans? Call us at 516 536-2525. We answer questions about different types of loans every day.