Adjustable Rate Mortgages aren’t always a bad idea when mortgage refinancing; in fact, right now it’s cheaper to refinance with an Adjustable Rate Mortgage than it is to let your ARM reset. If you’re considering an Adjustable Rate Mortgage from one of the best mortgage lenders like Amerisave, there are several things you’ll want to know to avoid a sticky situation down the road. Here are several tips before you refi to help you decide if Adjustable Rate Mortgage Refinancing is right for you.
How to Save Money Mortgage Refinancing
The goal for most people when refinancing is to lower their monthly payment by taking advantage of today’s low refinance mortgage rates. The problem arising for many homeowners is how much it’s going to cost them to get that lower payment. There are scores of fees you’ll be required to pay for mortgage refinancing, and depending on the lender and loan originator you choose you could end up paying a lot more than your neighbors.
Many of the fees you’ll encounter like the mortgage loan origination fee and discount points are negotiable. Take the loan origination fee for example, this is a fee paid to the broker or company arranging your refi. One percent is a perfectly reasonable amount to pay for the mortgage origination fee; however, it’s not uncommon to find brokers charging double for the broker fee, even more.
The reason mortgage fees are so important when refinancing your home is that if you don’t break even recouping your out of pocket expenses from the lower payment amount you’re actually losing money no matter how low the refinance rates.
The more you pay for loan origination, discount points and lender junk fees the longer it’s going to take to break even. Pay too much closing on your mortgage refi and you might never break even.
Adjustable Rate Mortgage Refinancing 101
Adjustable Rate Mortgages are home loans with a variable interest rate that adjusts over time. These loans are typically fixed for the first five to seven years (often seen as 5/1 or 7/1 ARMs) and then adjust on the anniversary date every year. When your ARM resets the lender will adjust your payment amount to the new interest rate depending on what’s going on with the LIBOR index at the time. The risk with an Adjustable Rate Mortgage is that if interest rates (particularly that pesky LIBOR index) spike when your home loan resets, your monthly payment will go up also.
That’s the danger of an Adjustable Rate Mortgage; however, what about homeowners planning on staying in their homes for only five to seven years? Because Adjustable Rate Mortgage rates are typically lower than their 30-year, fixed rate counterparts and have lower payment amounts this is when Adjustable Rate Mortgage Refinancing makes perfect sense. Just make sure your ARM doesn’t have a prepayment penalty for refinancing at the end of the fixed period.
Beware Unnecessary Discount Points
One thing you should know about the way lenders quote refinance rates is they often hide discount points in the fine print. Discount points are a fee you pay at closing to buy down your interest rate. One point is one percent of your loan amount and lowers the rate by .25 percent. If you find refinance mortgage rates quoted much lower by one lender chances are you’ll have to pay points to get that rate.
You might be frustrated to find that your mortgage refinance quotes are coming in higher than what lenders are advertising. If this is the case the likely culprit is your credit score. This is because the rates you see advertised by lenders like Wells Fargo Refinance and USAA Mortgage Rates are often based on having a credit score of 820 or better. If you have less than stellar credit your individual results will vary.
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You can learn more about getting the lowest refinance mortgage rates without paying unnecessary fees or discount points by checking out my free Underground Mortgage Videos.
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One thing is for sure and that is now is a great time to drop your rate no matter what kind of loan you have. Also a great time to buy a second home. My wife and I found a great retirement home in golf paradise for a lot less then they were a few years ago.