The shorter the amount of time you plan on keeping your home, the more sense it makes to refinance with an Adjustable Rate Mortgage. If you plan on selling your home within seven years, you can’t beat the introductory rates offered by 5/25 and 7/23 Adjustable Rate Mortgages.
These types of Adjustable Rate Mortgages have a fixed interest rate for the first five to seven years of the loan. At the end of the fixed period the lender will begin adjusting the interest rate in line with market mortgage rates. Refinancing your mortgage with an Adjustable Rate Mortgage of this type of mortgage could save you anywhere from .5% to 1.5% on your mortgage interest rate.
On a $100,000 mortgage loan you could expect your payment at 7.25% to be approximately $680 per month with a traditional, thirty year fixed mortgage. If you refinanced with the 5/25 Adjustable Rate Mortgage, your monthly payment would only be approximately $580 per month. If you kept the home in this example for five years you would save yourself $6,000!
Adjustable Rate Mortgages are not for everyone as there is risk involved with this type of mortgage; however, by limiting the amount of time you keep the loan, five years in this example, you minimize the risk. You can learn more about your mortgage options, including expensive mistakes you need to avoid with a free mortgage tutorial.
My name is Rob Regehr and I’m a personal finance writer with a chip on my shoulder for banks and brokers that take advantage of my friends and neighbors.
I am having a house built in Florida and I am selling mine in N.Y. , if I take out a short term adjustable mortgage for my new house and after I sell my other one I pay off the mortgage , will I be penalized?
Hi Stephen,
You’ll only be penalized if either mortgage has a prepayment penalty. The broker can arrange the short-term adjustable for that purpose without a prepayment penalty; however, you’ll want to check that your existing mortgage doesn’t include a penalty. If there is one in your loan contract you’ll be stuck paying it unless the lender will waive the penalty…it never hurts to ask.