Differences between fixed and adjustable rate loans

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

Your first few years of payments on a fixed-rate loan go primarily to pay interest. The amount applied to your principal amount increases up slowly each month.

You can choose a fixed-rate loan in order to lock in a low interest rate. People 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 offer greater consistency in monthly payments. If you currently have an Adjustable Rate Mortgage (ARM), we'll be glad to assist you in locking a fixed-rate at the best rate currently available. Call BancZone at 407-583-6250 for details.

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

Most ARM programs have a cap that protects you from sudden increases in monthly payments. Some ARMs won't increase more than 2% per year, regardless of the underlying interest rate. Sometimes an ARM has a "payment cap" that ensures your payment will not go above a fixed amount over the course of a given year. Plus, almost all ARM programs have a "lifetime cap" — this means that your rate can't go over the cap percentage.

ARMs usually start at a very low rate that may increase over time. You've likely heard of 5/1 or 3/1 ARMs. In these loans, the introductory rate is set for three or five years. It then adjusts every year. These loans are fixed for 3 or 5 years, then adjust. Loans like this are usually best for people who expect to move in three or five years. These types of ARMs are best for people who plan to move before the loan adjusts.

You might choose an ARM to get a lower introductory interest rate and plan on moving, refinancing or absorbing the higher rate after the introductory rate goes up. ARMs are risky when property values decrease and borrowers can't sell or refinance.

Have questions about mortgage loans? Call us at 407-583-6250. It's our job to answer these questions and many others, so we're happy to help!

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