What are the advantages of fixed rate versus adjustable rate loans? With a fixed-rate loan, your monthly payment of principal and interest never changes for the life of your loan. While your property taxes and homeowner's insurance premium may increase over the life of your loan, with a fixed-rate loan your payment will remain stable. Redwood Capital Bank has fixed-rate mortgages available in a variety of shapes and sizes, including: 30-year, 20-year, 15-year, even 10-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 portion is applied to principal. That gradually reverses itself as the loan ages. You may want to consider a fixed-rate loan if you want to lock in a lower interest rate. If you currently have an Adjustable Rate Mortgage (ARM), refinancing with a fixed-rate loan can give you additional monthly payment stability. Adjustable Rate Mortgages (ARMs) come in even more varieties. Generally, ARMs determine what you must pay based on an outside index, such as: the London Interbank Offered Rate (LIBOR), the 6-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 may adjust every six months or once a year. Most programs have a "cap" that protect you from your monthly payment going up too much at once. There may be a cap on how much your interest rate can go up in one period. For example, your interest rate could increase 2% per year, even if the underlying index goes up more than 2%. You may have a "payment cap," that instead of capping the interest rate directly caps the amount your monthly payment can go up in one period. In addition, almost all ARM programs have a "lifetime cap" which means your interest rate can never exceed that cap amount. ARMs often have their lowest, most attractive rates at the beginning of the loan which guarantees that rate from one month to ten years. There are "3/1 ARMs","5/1 ARMs" and "7/1 ARMs". This means that the introductory rate is set for three, five, or seven 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 within three, five or seven years, depending on how long the lower rate will be in effect. You may choose an ARM to take advantage of a lower introductory rate and count on either moving, refinancing or simply absorbing the higher rate after the introductory interest rate goes up. With ARMs, you do risk your rate going up, but you also take advantage when rates go down by pocketing more money each month that would otherwise have gone toward your mortgage payment.