Fixed versus adjustable rate loans

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With a fixed-rate loan, your payment doesn't change for the entire duration of the loan. The portion of the payment allocated to your principal (the actual loan amount) increases, but your interest payment will decrease accordingly. Your property taxes increase, or rarely, decrease, and your insurance rates might vary as well. But generally payments for your fixed-rate mortgage will be very stable.

At the beginning of a a fixed-rate mortgage loan, the majority your payment goes toward interest. The amount paid toward your principal amount increases up gradually each month.

Borrowers might 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 the low rate. For homeowners who have an ARM now, refinancing with a fixed-rate loan can provide greater consistency in monthly payments. If you have an Adjustable Rate Mortgage (ARM) now, we can assist you in locking a fixed-rate at the best rate currently available. Call GPN Mortgage at 405-720-7064 to discuss how we can help.

There are many different types of Adjustable Rate Mortgages. ARMs usually adjust twice a year, based on various indexes.

The majority of ARMs are capped, which means they can't increase over a certain amount in a given period of time. Some ARMs can't adjust more than two percent per year, regardless of the underlying interest rate. Sometimes an ARM features a "payment cap" that guarantees that your payment can't go above a certain amount in a given year. Additionally, almost all adjustable programs feature a "lifetime cap" — your interest rate can't go over the capped amount.

ARMs usually start out at a very low rate that usually increases over time. You've likely heard of 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 types of loans are fixed for 3 or 5 years, then they adjust after the initial period. These loans are best for borrowers who anticipate moving in three or five years. These types of adjustable rate programs are best for people who plan to move before the loan adjusts.

Most borrowers who choose ARMs do so when they want to get lower introductory rates and don't plan on staying in the house for any longer than the introductory low-rate period. ARMs are risky if property values go down and borrowers can't sell or refinance their loan.

Have questions about mortgage loans? Call us at 405-720-7064. It's our job to answer these questions and many others, so we're happy to help!