If you are concerned how rising mortgage interest rates will affect your monthly payment amount, refinancing your loan could protect you from economic uncertainty. There are many advantages to refinancing your home loan, regardless of interest rates. Here are the basics of refinancing your home loan to help you choose the best mortgage offer.
There are a number of factors affecting your mortgage that you have no control over. Interest rates are one such factor. If you purchased your home using a risky interest only or option adjustable interest rate loan and are nearing the end of your introductory period, you might want to consider refinancing before your mortgage payment becomes unmanageable. There are several types of mortgages you will want to consider when refinancing depending on your financial objectives. Here are the basics of mortgage loan types.
Fixed Interest Rate Home Loans
If you purchased your home with an Adjustable Rate Mortgage you probably chose this loan because of the low payment amount during the introductory period. The problem with Adjustable Rate Mortgages is that when this introductory period ends, the lender will adjust you interest rate and monthly payment amount. If your budget is stretched to the limit during the introductory period, you run the risk of falling behind on your payments when the lender adjusts your loan and losing your home at foreclosure. By refinancing your mortgage to a fixed interest rate home loan you will have the financial peace of mind knowing what your payment will be every month and the ability to budget accordingly.
Hybrid Adjustable Rate Mortgages
Hybrid home loans offer the best of both worlds. There is an introductory period that can last as long as ten years where your loan has a fixed interest rate. At the end of your introductory period the loan is converted to an adjustable rate mortgage at the prevailing interest rate. One of the main advantages of a hybrid home loan is that the initial interest rate will be lower than that of a comparable fixed rate loan. If you plan on selling your home or refinancing at the end of the fixed rate period, a hybrid mortgage could save you money.
Which Index Does Your ARM Track?
If you are considering an Adjustable Rate Mortgage you need to consider how interest rate changes will affect your payment amount. The mortgage lender will periodically adjust your interest rate and payment amount to the prevailing rate of the index your loan tracks and add lender markup. Some indexes change more than others, meaning your payment amount will be more susceptible to these changes. By choosing a loan with a less volatile index you will be less susceptible to changes in your mortgage payment.
You can learn more about your home loan options by registering for a free mortgage guidebook.
