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| | Many
people find the process of getting a loan to be confusing and, sometimes, a little
intimidating. Our
"Home Loan U" will provide you with some of the information you need
so you know what to expect and how to make wiser decisions. | |
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Fixed
Rate vs. ARM
One of the decisions you may have to make about
your home loan is whether you want a "fixed rate" or "adjustable rate" mortgage.
The answer will mean a difference in your payments, the total interest you will
pay over the life of your loan, and the amount of uncertainty about the size of
your payments in the future.
A fixed rate loan is one in which the interest
rate stays the same, month after month, throughout the term of your loan. With
a fixed rate loan, your payment never changes. You know what it will be two, ten,
twenty years into the future.
An adjustable rate mortgage (ARM) is one
in which the interest rate is keyed into an index, such as Treasury Bills or the
Cost of Funds for Savings & Loans. When the index rate goes up, so does your interest
rate, which means a higher monthly payment. When the index goes down, so does
your interest rate and payment.
So... which is better? It depends! Fixed
rate mortgages are predictable but the interest rates are higher, at least at
the beginning of your term. Many people are more comfortable with this predictability,
especially when interest rates are as low as they have been for the past few years!
But there are advantages to an ARM as well. The initial interest rate
is usually substantially lower than fixed rate mortgages, and there will be a
period during which it will not change. The difference that lower interest rate
makes in your monthly payment may make the difference between getting the house
you want or settling for something less.
Premier Bancorp offers a variety
of both ARMs and fixed rate mortgages. To find the loan that's right for you,
visit our Loan Programs page | |
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| | Useful
definitions: Fixed
Rate - A loan where the interest rate is fixed over the entire term of
the loan.
ARM - A loan where the interest rate is adjusted
periodically relative to a stated index. If the index goes up, the payment will
go up. If the interest goes down, the payment will go down.
Index
- A measure of interest-rate changes that the lender uses to decide how much the
interest rate on an ARM will change over time. The lender will add a margin to
the index to come up with your interest rate. Some commonly used indexes are 1-year
Treasury rates or the London Inter Bank Offering Rates (LIBOR). Visit
our Glossary! | |
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