Differences between fixed and adjustable loans

	Shopping for a mortgage? We can assist you! Give us a call at (801) 983-8201. Ready to get started? Apply Online Now.

With a fixed-rate loan, your payment stays the same for the entire duration of the loan. The amount allocated for your principal (the actual loan amount) will increase, but the amount you pay in interest will go down in the same amount. Your property taxes increase, or rarely, decrease, and your insurance rates might vary as well. For the most part monthly payments for a fixed-rate mortgage will be very stable.

At the beginning of a a fixed-rate mortgage loan, most of the payment goes toward interest. The amount paid toward principal goes up slowly each month.

You might choose a fixed-rate loan to lock in a low interest rate. People choose these types of loans because interest rates are low and they want to lock in at the low rate. For homeowners who have an ARM now, refinancing with a fixed-rate loan can offer greater monthly payment stability. 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 Graystone Mortgage at (801) 983-8201 to discuss your situation with one of our professionals.

Adjustable Rate Mortgages — ARMs, as we called them above — come in many varieties. Generally, interest rates on ARMs are determined by a federal index. A few of these are: the 6-month CD rate, the 1 year Treasury Security rate, the Federal Home Loan Bank's 11th District Cost of Funds Index (COFI), or others.

Most ARMs feature this cap, so they can't increase over a certain amount in a given period of time. Some ARMs can't increase more than two percent per year, regardless of the underlying interest rate. Sometimes an ARM has a "payment cap" which guarantees that your payment can't go above a fixed amount over the course of a given year. Additionally, the great majority of ARMs have a "lifetime cap" — this means that your rate can't exceed the capped percentage.

ARMs most often have the lowest rates at the start. They usually provide that interest rate from a month to ten years. You've likely 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 number of years (3 or 5), then they adjust. These loans are best for people who anticipate moving in three or five years. These types of adjustable rate programs are best for borrowers who will sell their house or refinance before the loan adjusts.

Most people who choose ARMs choose them because they want to take advantage of lower introductory rates and do not plan to stay in the house longer than this introductory low-rate period. ARMs can be risky when property values go down and borrowers cannot sell their home or refinance their loan.

Have questions about mortgage loans? Call us at (801) 983-8201. We answer questions about different types of loans every day.