Fixed Rate Mortgage vs. LIBOR ARM?

Differences Between a Fixed Rate Mortgage vs. LIBOR ARM?

With mortgage interest rates as low as they are today, millions of people are considering refinancing their existing mortgage or purchasing a new home. When shopping for a new mortgage, many people are confused by the various different mortgage product types. Two of the most popular mortgage product types are fixed rate mortgage and LIBOR adjustable rate mortgages. While both forms of mortgages are popular, the two types have many differences. The first difference between a fixed rate mortgage and a LIBOR ARM is the fact that the interest rates on a fixed rate mortgage will never change, but the rate on a LIBOR loan is subject to change. With a fixed rate mortgage, the rate and payment you have in month one will never change throughout the term of the loan. With a LIBOR loan, your payment is subject to change after the initial fixed rate period, which is typically three or five years. This means that you run the risk of seeing your interest rate rise dramatically over time, which could make your payment unaffordable in the future. The second difference between a fixed rate mortgage and a LIBOR ARM that the initial interest rate offered is typically much different. With a fixed rate mortgage, banks are locking themselves into a loan for a very long period of time and run the risk of being able to lend money at higher rates if rates rise in the future. With adjustable rate mortgages, banks typically lock in their capital for a shorter period of time, which prevents them from accepting the same interest rate risk that they would have with a fixed rate mortgage. Because of this, banks typically offer much lower initial interest rates to customers getting an adjustable rate mortgage. The third difference between a fixed rate mortgage and a LIBOR ARM is that fixed rate mortgages tend to have less fees than adjustable rate mortgages. With fixed rate mortgages, borrowers have to pay fees upfront at loan origination but are then free of fees for the life of the loan. Depending on the loan agreement, those with adjustable rate mortgages could end up paying various bank fees on an annual basis to compensate the bank for adjusting the rate.

When is an arm mortgage calculator used in banking?

An ARM mortgage calculator is used when you have an adjustable rate mortgage instead of a fixed rate mortgage. It is recommended that you get a fixed rate mortgage to avoid sudden spikes in your monthly payment.

Option ARM vs. Fixed Rate Mortgage?

Option ARM vs. Fixed Rate Mortgage A fixed rate mortgage has the same payment for the entire term of the loan. The Option ARM uses a low initial rate to calculate your initial minimum monthly payment. Although the interest rate will increase after 1 to 3 months, your low payment will remain fixed for the entire year. This can produce a much lower monthly payment than a traditional fixed rate mortgage, or even an adjustable rate mortgage (ARM).

What is a ARM loan?

An ARM loan, known as an adjustable rate mortgage, is a type of loan where the interest rate is fixed for some initial period. After that initial period, the interest rate is variable, typically based on an index (e.g., prime rate, LIBOR, etc.) plus a margin imposed by the lender.

What type of mortgage loan has a fixed rate fixed term and fixed payment?

ARM

Can you refinance an adjustable rate mortgage (ARM) loan?

Yes, you can refinance an adjustable rate mortgage (ARM) loan by converting it into a fixed-rate mortgage or by refinancing to another ARM with more favorable terms.

Who sets the margin for an adjustable rate mortgage?

The issuing bank sets the margin for an adjustable rate mortgage (ARM), which is typically an additive offset from a well-known index like the prime rate or LIBOR.

What is a arm rate?

Percentage rate to borrow on an adjustable rate mortgage (one that changes-is not fixed)

IN an adjustable rate mortgage is a margin added to give a full interest rate?

Most ARM loans are based on a mortgage index. Common indexes are LIBOR, CMT, T-Bill and COFI. That index is added to the margin to create the fully indexed interest rate.

What are some reasons to refinance a home mortgage?

Some reasons for refinancing a mortgage is lowering mortgage rate, change in family composition, purchasing other properties for investment and switching the mortgage type from Adjustable-Rate Mortgage (ARM) to a fixed-rate mortgage.

What is a 7 year arm loan?

A seven year ARM loan, or Adjustable Rate Mortgage starts out for 7 years with a fixed rate that does not change. Then, the rate will become variable and change every month, or every six or 12 months. The variable rate is based on a mortgage index like LIBOR, CMT, T-Bill or COFI, which are the most common, and a margin. The margin is added to the index, then usually rounded to the nearest 1/8th (one eighth) of a percentage point. All the rules on how the interest rate changes are written into an Adjustable Rate Mortgage Note or Adjustable Rate Rider.

Does Amerisave Mortgage offer both fixed rate and ARM mortgages?

Yes Amerisave does offer both fixed rate and ARM mortgages. You would have to go and check out the resource on their site to find out exactly what kind of rate you want.