Mortgage Trend

Posts Tagged ‘borrower’

You may listen to an audio recording of this article at:

https://www.dependableloanoffi cer.com/AB_Fixed_vs_ARM.

Now here’s a hot topic of conversation if ever I heard one. Don’t believe me? Start talking about Adjustable Rate Mortgages at your next cocktail party, and you’ll find out.

These are two very distinct kinds of loans that a lot of people have questions about. Therefore, I decided to add a commentary about them to my Blog. We’ll get into comparing and contrasting the two in just a moment. But first let’s go ahead and define each of them so that we’re all on the same page.

Fixed Rate Mortgages A fixed rate mortgage is just that. This means that the interest rate offered by the lender at the time of loan origination is fixed (or set in stone), per the contract note, for the life of the loan period. The result of this means that the amount of the monthly payment the borrower makes remains constant. With a fixed rate mortgage, the only way your payment amount could change would be if your property taxes, insurance, or HOA dues changed. But the amount of the monthly mortgage payment, in terms of principal and interest, does not change.

An adjustable rate mortgage, on the other hand, is also just that. It’s a loan where the interest rate is adjusts with changing economic conditions. So if interest rates in the economy increase, then the interest rate on the loan increases. Conversely, if the interest rates in the economy decrease, then the interest rate on the loan will decrease.

Now, with most ARMs there is usually an introductory period which is generally anywhere from 2-10 years. During this initial window of time, the lender offers you a fixed rate. This means that the interest rate will not change during the introductory period, and after the intro period expires the rate will adjust to wherever rates are at at that time. Either up or down.

So why then do some people take out ARMs? Well the answer isit depends. In an ARM situation the introductory period should offer a savings over that of a 30 year fixed rate. It’s this savings during the introductory period that makes ARMS so attractive to borrowers at the time of loan origination. However, the amount of the savings during the intro period on ARMs fluctuates all the time. Sometimes the savings is significant, sometimes it’s pretty much the same as the 30 year fixed rate, and other times it can be more expensive. It just all depends on where pricing is at at that time.