Fixed Vs. Adjustable

With a fixed-rate loan, your payment doesn’t change for the life of your loan. The longer you pay, the more of your payment goes toward principal. The property tax and homeowners insurance will increase over time, but for the most part, payment amounts on these types of loans vary little.

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

Borrowers can choose a fixed-rate loan to lock in a low rate. Borrowers choose fixed-rate loans because interest rates are low and they wish to lock in the lower rate. For homeowners who have an ARM now, refinancing into a fixed-rate loan can provide greater consistency in monthly payments. If you currently have an Adjustable Rate Mortgage (ARM), we can help you lock in a fixed-rate at the best rate currently available. Call Baseline Mortgage, LLC at 503.422.6013 for details.

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

Most Adjustable Rate Mortgages feature this cap, so they won’t go up over a certain amount in a given period of time. Some ARMs can’t adjust more than 2% per year, regardless of the underlying interest rate. Sometimes an ARM has a “payment cap” which guarantees your payment will not increase beyond a certain amount in a given year. Most ARMs also cap your interest rate over the life of the loan period.

ARMs usually start at a very low rate that may increase as the loan ages. You may hear people talking about “3/1 ARMs” or “5/1 ARMs”. For these loans, the introductory 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 adjust. Loans like this are usually best for people who expect to move within three or five years. These types of adjustable rate programs benefit people who will move before the loan adjusts.

You might choose an Adjustable Rate Mortgage to take advantage of a lower introductory rate and plan on moving, refinancing or absorbing the higher rate after the initial rate goes up. ARMs can be risky in a down market because homeowners could be stuck with increasing rates when they can’t sell or refinance with a lower property value.