Home owners are experiencing interest rates at an incredible all time low, therefore, allowing more people to take advantage and refinance their mortgage. This will reduce the payments which are necessary for mortgages and make the monthly expenditure lower. At present, it is possible to receive rates as low as 4%, which is incredible.
Mortgage refinancing can be the perfect way to reduce your existing payments for your mortgage. However, there are several things that you need to consider before rushing out and deciding that mortgage refinancing is the best thing for you. If you do not take the time to research and understand every element of the proposal, you may regret the decision in the future.
Taking the time to study ARM vs Fixed Rate
Adjustable Rate Mortgage or ARM as people refer to them is considered to be the best mortgage to provide a lower initial interest rate. This style of mortgage reflects the favorable interest rates for short term rates. The ARM loans set the interest far lower than long term rates; however, they will rise in the future.
You need to appreciate that the brilliant low interest rates will not last forever, and eventually they will begin to rise. This increase will cause your monthly payments to rise, which for some people can cause issues. If you are not prepared for your mortgage payments to increase, it can cause financial pressure.
There are tools to help you calculate the cost of the adjustable rate mortgage as it rises, and ensure that you understand what will happen to your payments. You will need to use the helpful mortgage calculator from emortgage to display what your mortgage payments are likely to do in the future. If you find that they will rise considerably, you may be better to choose other mortgage options.
Some people discover that their estimated mortgage payments rise too much, and even go above a fixed rate loan. If this happens, you need to consider if choosing the mortgage with the fixed rate is far better for you. The payments will be exactly the same amount every month regardless of what the interest rates do in the future.
Remembering the closing costs
You will also need to ensure that you remember about the closing costs which are involved with mortgage refinancing. There is no point in going through time and effort of refinancing if you are going to spend a huge amount with a small saving. Breaking down payments and costs to the last detail will ensure that you have all of the information.
The loan costs will need to be determined alongside the cost of the new loan, and the savings which it will produce every month. This total will need to be divided by the overall amount of the closing costs, providing you with the figure that you need.
This may seem complicated; however, it is a straightforward mathematic equation. For example if you lower your mortgage payments to $200 a month with closing costs of $5,000, you will take 2.5 years to cover the amount for the closing costs. To make any of this option viable, you will need to remain living in your home for this period, and continue to pay the mortgage.