With a fixed-rate loan, your monthly payment of principal and interest never change for the life of your loan. Your property taxes and homeowner's insurance premium might go up, but generally with a fixed-rate loan your payment will be very stable.

Fixed-rate loans are available in 30-, 20-, 15- and even 10-year loans.

Some fixed-rate mortgages are called "biweekly" mortgages and shorten the life of your loan. You pay every two weeks for 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) come in even more varieties. Generally, ARMs determine what you must pay based on an outside index, perhaps the six-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 can 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 can 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. Or, you may have a "payment cap," that caps the amount your monthly payment can go up in one period instead of the interest rate directly . 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 10 years. You may hear people talking about what are called "3/1 ARMs" or "5/1 ARMs." This 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 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.

Fixed and adjustable rate mortgages both have benefits.  The catch is figuring out which loan is best for your individual situation.  That's what we specialize in at Water Street Mortgage Corporation - give us a call, we would love to talk to you at no obligation and no charge! 

Are you thinking of "Breaking your ARM"?   Many low interest ARM's are going to experience a dramatic increase in the next couple months to years.  We will consult with you to determine the best loan option to maintain the lowest possible interest rates.  If refinancing is not your best option, we will tell you!