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Fixed Rate Mortgage Refinancing – Your Financial Peace of Mind

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mortgage common sense Fixed Rate Mortgage Refinancing   Your Financial Peace of MindIf 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.

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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.

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