No two home shoppers are exactly alike. While someone may prefer a fixed rate mortgage others may favor an adjustable rate mortgage as the home loan of choice. Prior to committing to either option, using Mortgage Marvel's ARM vs. Fixed Rate loan calculator may shed some much needed light on the situation.
It is important to note that a fixed rate mortgage has equal payment amounts for the duration of a loan while an adjustable rate mortgage (ARM) has fluctuating rates, which can cause monthly payment amounts to increase or decrease. Mortgage Marvel's ARM vs. Fixed Rate Mortgage calculator will compare a fixed rate mortgage to two types of ARMs, a fully amortizing ARM and an interest only ARM.
A mortgage in which the monthly principal and interest payments remain the same throughout the life of the loan. The payment is calculated to payoff the mortgage balance at the end of the term. The most common mortgage terms are 30 and 15 years. With a 30-year fixed rate mortgage monthly payments are lower than on a comparable 15 year fixed rate, but the 15 year loan allows consumers to repay the loan twice as fast and save more than half the total interest cost.
Fully Amortizing ARM
The most common type of ARM. The monthly payment is calculated to payoff the entire mortgage balance at the end of the term. The term is typically 30 years. After the fixed interest rate period has passed, the interest rate and payment typically adjusts annually. A fully amortizing ARM will also have a maximum rate that it will not exceed. The Mortgage Marvel ARM vs. Fixed Rate Mortgage mortgage calculator uses a maximum interest rate of 12%. Below is a list of the most common types of fully amortizing ARMs.
Interest Only ARM
An interest only ARM only requires individuals to make monthly interest payments. Since mortgage holders are not paying any principal like with a fixed rate mortgage or a fully amortizing ARM, monthly payments are lower. However, since the principal balance is not decreased, a balloon payment will be due at the end of the mortgage's term. Like a fully amortizing ARM, an interest only ARM will often have a period where the interest rate is fixed and then it can be adjusted annually. An interest only ARM will also have a maximum interest rate that it will not exceed. The ARM vs. Fixed Rate Mortgage calculator caps the interest rate at 12%.
In relation to a Mortgage Marvel mortgage calculator, this is the original or expected balance of a mortgage.
Term in Years
The number of years it will take to repay a home loan. The most common mortgage loan term lengths are 30 years and 15 years. For balloon mortgages, most common terms are 5 years and 7 years and after that time period concludes individuals will need to either refinance or pay off the remaining balance. For interest only loans, consumers will have a balloon payment for the entire principal balance at the end of the loan term.
Expected Rate Change
In relation to a Mortgage Marvel mortgage calculator, this is the annual rate adjustment expected for an ARM. The range used for the ARM vs. Fixed Rate Mortgage calculator is negative 3% to positive 3%. Consumers should use a negative value if they believe interest rates will decrease and use a positive value if the belief is that they will increase.
The rate charged in order to borrow a lender's money. The interest rate takes into account the risk and cost to the lender for a loan. The interest rate depends on the going market rate and how many discount points are paid up-front. An adjustable rate mortgage's interest is a variable rate determined by the index and the margin.
In the beginning of the loan term, ARMs feature a fixed rate of interest. The ‘months rate fixed' is the number of months the rate is fixed for an ARM. During this period the interest rate and the monthly payment will remain fixed. The rate will then adjust annually by the expected rate change.
Interest Rate Cap
This is the highest interest rate allowed by a mortgage. The actual interest rate charged will not be adjusted above this limit.
Monthly principal and interest (P&I) payment for the fixed rate mortgage and the fully amortizing ARM. In relation to a Mortgage Marvel ARM vs. Fixed Rate Mortgage mortgage calculator, this is an interest only payment for an interest only ARM.
Information and interactive calculators are made available to you as self-help tools for your independent use and are not intended to provide investment advice. We can not and do not guarantee their applicability or accuracy in regards to your individual circumstances. All examples are hypothetical and are for illustrative purposes. We encourage you to seek personalized advice from qualified professionals regarding all personal finance issues.