Fixed versus adjustable loans

A fixed-rate loan features the same payment for the entire duration of the loan. The property taxes and homeowners insurance will go up over time, but in general, payment amounts on fixed rate loans vary little.

When you first take out a fixed-rate mortgage loan, most of your payment is applied to interest. As you pay on the loan, more of your payment goes toward principal.

You can choose a fixed-rate loan to lock in a low interest rate. People select fixed-rate loans because interest rates are low and they wish to lock in at the low rate. If you have an Adjustable Rate Mortgage (ARM) now, refinancing with a fixed-rate loan can provide greater consistency in monthly payments. If you currently have an Adjustable Rate Mortgage (ARM), we can assist you in locking a fixed-rate at the best rate currently available. Call Executive Lending Group at (405) 822-1957 to learn more.

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

Most Adjustable Rate Mortgages are capped, which means they won't go up above a specific amount in a given period. Some ARMs won't adjust more than 2% per year, regardless of the underlying interest rate. Sometimes an ARM features a "payment cap" which ensures that your payment won't increase beyond a fixed amount in a given year. Plus, the great majority of ARMs feature a "lifetime cap" — your rate won't exceed the capped amount.

ARMs usually start at a very low rate that usually increases as the loan ages. You've probably read about 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 a certain number of years (3 or 5), then adjust. These loans are often best for borrowers who expect to move within three or five years. These types of ARMs benefit borrowers who plan to move before the initial lock expires.

Most people who choose ARMs choose them because they want to take advantage of lower introductory rates and don't plan to stay in the home for any longer than this introductory low-rate period. ARMs can be risky if property values decrease and borrowers cannot sell their home or refinance their loan.

Have questions about mortgage loans? Call us at (405) 822-1957. It's our job to answer these questions and many others, so we're happy to help!

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