A fixed rate mortgage is front loaded with interest and is amoritized over a 30 year period. An adjustable rate mortgage accrues interest based on the principle balance each month. Some adjustable rate mortgages have an assumibility feature; which means you can assume the current interest rate for the rest of the life of the loan if you choose so. Interest rate tied to a fixed is based on prime; which is very volitile... most credit cards are based off of this. You wouldnt have to worry about your mortgage adjusting from time to time with a fixed. Adjustable rate mortgages have many different indexes to choose from, not all are for all people. When choosing a mortgage specialest make sure that he or she explains what your ARM's (admustable rate mortgage) Index is tied to.COSI- cost of savings index... slow moving/ safest COFI - Cost of funds index... simular to cosiLIBOR - london inter bank offered rate...can be volitiletheres many more. The advantages of ARMs VS Fixed are: some ARM's have flexibility - this is called a payment option arm, basically you have four different payments to choose from each billing cycle- minimum payment (which can deffer interest, the higher the start rate, the lower the amount that will be deferred) 30 year, 15 year, Interest only. Some ARM's have a true bi-weekly feature which means a lot of savings for you. Interest is calculated every fourteen days and rescheduled meaning that you will save thousands in compound interest if you decide to go with this program. Make sure that it is a TRUE bi-weekly. Some programs have bi-weekly features where the bank will withdraw funds every 14 days but they wont apply the payment until day 30... which is pointless. Some ARM's have start rates as low as 1% - but remember... the lower the start rate the more deferred interest. When viewing deferred interest besides the appreciation rate on a house however, Some poeple dont mind, and understand that it doesnt really matter. lets say you defer 10K after three years, which gets added to the balance on your loan but your house appraises 25K more. Fixed rates have no flexibility; the payment is what the payment is. Look up amoritization tables on a 30 year fixed and see how much you pay towards the principle for the first 5 years! Good for people with steady incomes and want the security of a fixed payment. The interest rate on a fixed is usually higher than one on an ARM at the time of interest.--hope this helps.
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05-03-2007, 11:09 PM
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