Mortgage interest rates are on the rise and the Federal Reserve has no plans to stop raising interest rates. If your lender is scheduled to adjust your interest rate and payment amount soon and you are concerned how this will affect your budget, you should consider refinancing to a fixed interest rate. Here are tips to help ease you financial peace of mind.
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that can save you thousands of dollars on your next home loan.
When you refinance your adjustable mortgage to a fixed interest rate you can reduce your monthly payment and lock in a low rate for the duration of your mortgage loan. Introductory interest rates for many Adjustable Rate Mortgages are still enticingly low; however, most financial advisors recommend avoiding adjustable interest rates. The risk associated with these loans is that your monthly mortgage payments could rise significantly when the lender begins adjusting your loan.
The interest rate you will receive when the introductory period expires is usually tied to one year Treasury interest rates. The mortgage lender will add their premium markup to this rate and you could find your interest rate rising as much as two points each year. On top of the lender markups the Federal Reserve has made a habit of raising short term interest rates.
Adjustable rate mortgages are not for the faint of heart; however, there are certain circumstances where using an Adjustable Rate Mortgage makes good financial sense. If you understand the risks and are certain you will move in less than five years, you could save money and avoid payment increases by taking out a five year Adjustable Rate or Hybrid mortgage. To learn more about your mortgage options, including how to avoid common mortgage mistakes, register for our free mortgage guidebook: “Five Things You Need to Know before Refinancing Your Mortgage.”