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.
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.
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, perhaps the 6-month Certificate of Deposit (CD) rate,
the one-year Treasury Security rate, the Federal Home Loan Bank's 11th
District Cost of Funds Index (COFI), or others. They may adjust every six
months or once a year.
Most programs have a "cap" that protects you from your monthly payment
going up too much at once. There may be a cap on how much your interest
rate can go up in one period -- say, no more than two percent per year,
even if the underlying index goes up by more than two percent. You may
have a "payment cap," that instead of capping the interest rate directly caps
the amount your monthly payment can go up in one period. In addition,
almost all ARM programs have a "lifetime cap" -- your interest rate can never
exceed that cap amount, no matter what.
ARMs often have their lowest, most attractive rates at the beginning of the
loan, and can guarantee that rate for anywhere from a month to ten years.
You may hear people talking about or read about what are called "3/1
ARMs" or "5/1 ARMs" or the like. That means that the introductory rate is set
for three or five years, and then adjusts according to an index every year
thereafter for the life of the loan. Loans like this are often best for people
who anticipate moving -- and therefore selling the house to be mortgaged --
within three or five years, depending on how long the lower rate will be in
effect.
You might choose an ARM to take advantage of a lower introductory rate
and count on either moving, refinancing again or simply absorbing the
higher rate after the introductory rate goes up. With ARMs, you do risk your
rate going up, but you also take advantage when rates go down by
pocketing more money each month that would otherwise have gone toward
your mortgage payment.
Bi-Weekly Calculator
Refinance Calculator
Home Equity Line
Fixed -vs- Adjustable
Refinance
499 NW 70th Ave Plantation, FL 33317-7500
Phone: 954-689-7777
E-mail: info@teamfleetwood.com
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