Today we are discussing if you should refinance your adjustable rate mortgage. Refinancing is when a person or a business revises a payment schedule for repaying debt. Mechanically, the previous loan is paid off and replaced with the refinanced version that offers different terms. You may want to refinance for a variety of reasons but the common goal is to pay less interest over the life of the loan. A borrower may also want to change the duration of the loan or even switch from an adjustable-rate mortgage to a fixed rate. There are other aspects to think about but I’ll get to that later.
Refinancing may be an option for you to consider if your loan is adjusting to an interest rate that’s higher than the current market rates. Like many home buyers, you may have been attracted to the lower initial interest rate of an adjustable rate mortgage or A.R.M., while adjustable rate mortgages have lower initial interest rates then fixed rate mortgages, the lower interest rate is only for a set period of time. Adjustable rate mortgages (A.R.M.’s) have an initial fixed-rate period. During that initial fixed-rate period, rates and monthly
payments are lower than normal fixed-rate loans. When the fixed-rate period ends on your ARM loan, the monthly payment adjusts, based on the type of loan you have. Your interest rate and your monthly payment will rise or fall based on the market rate or index. Is refinancing from an ARM to a fixed-rate mortgage, right for you?
An ARM or valuable interest rate can rise based on market or index rates while the interest rate of a fixed rate mortgage does not change during the length of the loan term. Refinancing out of an
adjustable rate mortgage to a fixed rate mortgage may provide stability that you will really appreciate and take comfort in the fact that your monthly payment is going to remain the same. You may gain protection from rising interest rates and future payment increases. Fixed rate loans provide the security of predictable monthly payments. If you do decide to refinance, your financial institution can offer a variety of fixed rate home financing options. The process can be streamlined and convenient. For borrowers with a perfect credit history, refinancing can be a good way to convert a variable loan rate to a fixed, and obtain a lower interest rate. On the other hand for borrowers with less than perfect credit, bad credit, or too much debt, refinancing can be risky. In any climate, it can be difficult to make payments on a home mortgage between high interest rate and unstable economy, making mortgage payments could become tougher than expected. If you find yourself in a difficult situation, it may be the time to think of refinancing also. If you don’t have the right information on refinancing it could hurt you rather than help you so be sure to do your research on all of the aspects of refinancing and list your reasons why you might want to before going ahead with it.