Home Mortgage Refinancing Guide

If you are in the market to refinance your existing home mortgage you might be considering the pros and cons of a fixed rate mortgage over their adjustable rate counterparts. Fixed rate mortgage loans can give you financial peace of mind knowing that your payment will not change over time; however, this peace of mind comes at a price. Fixed rate mortgages come with higher interest rates than similar adjustable rate mortgages. Here are several tips to help you decide if fixed rate mortgage refinancing is right for you.

Fixed rate mortgages are exactly what their name implies; a mortgage with an interest rate that does not change over the duration of the loan. This is a great loan option for homeowners in need of consistent financing for a long period of time. The peace of mind offered by fixed rate mortgages comes from the fact that your payment amount and finance charges remain constant regardless of what’s happening with the economy or if mortgage rates skyrocket.

This consistency of payment amount and mortgage rate is an advantage when interest rates are rising; however, when interest rates go down homeowners can choose to refinance it paying the expense of a new mortgage is beneficial. Many homeowners rush out and refinance their fixed rate loans at the first dip in mortgage rates without considering how long it will take them to recoup the expense of taking out a new mortgage loan. All mortgages come with fees and other expenses; you should evaluate refinancing on a cost and savings basis before going forward with a new mortgage. Never let your bank or mortgage broker pressure you into refinancing without doing this cost/savings analysis.

Fixed Rate Mortgages Are More Expensive

Having financial peace of mind will cost you. In almost every case a fixed rate mortgage is a more expensive option than a similar adjustable rate mortgage, at least initially. This means you can expect to pay on average .5 to 1.5 percent more than an adjustable rate mortgage, which translates to a higher monthly payment. Fixed rate mortgages are higher because the lenders assume greater risk of higher rates when locking you in at a fixed interest rate.

Is Fixed Rate Mortgage Refinancing Right For You?

The answer to this question depends on your individual situation, including your tolerance for financial risk. If you purchased your home with one of those risky option or interest only mortgages and are facing a higher payment when the lender resets your loan a fixed rate mortgage could be right for you.

If you need a lower payment and can tolerate some risk with your finances, consider a hybrid adjustable rate mortgage which allows you to take advantage of a lower fixed rate period before the lender starts adjusting your mortgage rate.

You can learn more about your fixed rate mortgage refinancing options, including expensive pitfalls to avoid like paying retail markup on your mortgage interest rate, by registering for a free refinancing tutorial.

If you’re in the process of refinancing your home mortgage, you might be wondering what type of interest rate is right for you. There are two basic types of mortgage rates to choose from when refinancing your home. In a previous article I discussed the pros and cons of Adjustable Rate Mortgages; today we’ll discuss the merits of refinancing your home loan with a fixed rate mortgage.

What Are Fixed Rate Mortgage Loans?

Fixed rate mortgages are simply mortgage loans with a contracted interest rate that does not change for the entire duration of your loan. This means that your mortgage payment will never change due to market or economic conditions. Your interest rate and payment amount are “locked-in” as long as you keep the loan.

What are the Advantages of Fixed Rate Mortgage Loans?

While it’s true that fixed rate mortgages typically come with higher interest rates than a similar Adjustable Rate Mortgage, the amount of risk associated with these loans is significantly lower. Because Adjustable Rate Mortgages change their interest rate and payment amounts over time you’ll always run the risk of payment shock. If you have a low tolerance for financial risk and need a mortgage payment that you can plan your budget around consider refinancing with a fixed rate mortgage.

If you are an individual that takes chances with your finances you could benefit from an Adjustable Rate Mortgage. These mortgages come with much lower payments and when used correctly you can minimize the risk. Adjustable Rate Mortgages are great for homeowners that need short term financing with an ultra-low payment. There are a number of choices for your Adjustable Rate Mortgage including interest-only and option mortgages. You can learn more about choosing the best Adjustable Rate Mortgage for your situation with my free mortgage tutorial.

How Your Interest Rate Determines Your Mortgage Payment

There are two factors that determine your mortgage payment amount. These factors are the mortgage rate you qualified and the term length you choose when refinancing. Term length is the amount of time you have to repay your mortgage and determines your loan’s amortization schedule. The length of term you choose is inversely proportional to your payment amount. Loans with short term lengths have higher payments and those with long term lengths have lower payments. If you need the lowest possible mortgage payment there are now loans available with 40 and 50 year term lengths.

Choosing the best type of mortgage rate for your situation should be an easy decision. Finding a loan originator that will not charge you Yield Spread Premium when refinancing your loan will be much more difficult. Yield Spread Premium is the unnecessary markup of your mortgage interest rate to give your mortgage broker a bonus and is the reason most homeowners in the United States overpay for their mortgage loans. You can learn more about your mortgage refinancing options, including expensive pitfalls to avoid with my free video tutorial. You can register today for free by clicking the DVD image at the top of this page.

If you are in the market to refinance your mortgage the type of interest rate you should choose depends on your situation. If you can afford a higher monthly payment and plan on keeping your home for at least seven years or if you have little tolerance for financial risk, consider a fixed interest rate mortgage.

If you cannot afford your mortgage payments for now but expect your income to increase in the near future consider an Adjustable Rate Mortgage as a short-term solution. Many homeowners get themselves into trouble because they do not foresee their income going up and purchase more home than they can afford. It’s better to have a solid plan in place today and save yourself the sleepless nights and financial hardship of losing a home you never should have purchased in the first place.

If you expect to be moving within seven years you could save yourself some money with an Adjustable Rate Mortgage or even a hybrid ARM. You could structure the Adjustable Rate Mortgage so it will not reset until after you’ve sold your home. This essentially eliminates all of the risk associated with Adjustable Rate Mortgages. If you take this approach when refinancing make sure the points you’re required to pay do not offset your savings; also, make sure the loan does not include a prepayment penalty that will be enforced when you are ready to sell your home.

When evaluating Adjustable Rate Mortgages for a home you plan on keeping for longer than seven years there are several factors you need to consider before refinancing. The index, margin, and caps all affect your payment and the amount of risk associated with your loan. The index your Adjustable Rate Mortgage is tied to plus the lender’s margin determines what your interest rate will be when the lender makes adjustments.

Caps are safety features that protect you from sudden increases in your interest rate and payment amount. Periodic caps limit how much your mortgage rate can go up or down during an adjustment or over the lifetime of your loan. Payment caps limit how much your monthly payment can go up or down during any single adjustment or over the lifetime of your loan. It is important to structure your loan with both periodic and payment caps; improperly structured Adjustable Rate Mortgages are prone to negative amortization (a loan that grows over time) when the change in your payment amount does not allow for all of the interest due in a given month.

The risks associated with Adjustable Rate Mortgages come from the possibility of experiencing payment shock. When the lender stars adjusting your loan you could wake up with a double digit interest rate and a payment you can no longer afford. You can learn more about your mortgage refinancing options, including costly pitfalls to avoid with my free mortgage toolkit. Register today by clicking the DVD at the top of this page.

When it comes to mortgage interest rates, you have two basic choices, adjustable and fixed. There are several good reasons for choosing a fixed interest rate when mortgage refinancing. Here are several tips to help you decide if a fixed interest rate mortgage is right for you.

When the current fixed mortgage rates are low compared to the previous two or three years, fixed rate mortgages are a good idea. Choosing a fixed rate mortgage locks in your payment amount and interest rate for the remaining term of the loan. Mortgage interest rates change frequently and over the last quarter century mortgage rates have been as high as 19 percent and as low as 5 percent. If you lock in your mortgage rate too high you’ll spend more for your mortgage unnecessarily. When interest rates are historically low is the best time to lock in your mortgage rate.

Fixed interest rate mortgages are ideal for homeowners that want to avoid the risks associated with Adjustable Rate Mortgage loans. If you’re not the gambling type, fixed rate mortgages never go up. While Adjustable Rate Mortgages start out low, they can go up quickly when your lender adjusts your loan. If you want to know what your payment will be ten, fifteen, or twenty years from now, choosing a fixed rate mortgage could give you peace of mind.

You can learn more about your mortgage options, including costly mistakes to avoid with your mortgage interest rate by registering for a free mortgage tutorial.