Refinancing your adjustable rate
mortgage into a fixed rate mortgage is often a wise idea, especially in a
climate like today's, when adjustable rates are skyrocketing daily, forcing
homeowners nationwide into foreclosure.
There are definitely advantages to
getting an adjustable rate mortgage to buy a home, and in fact sometimes it's
the only way certain households are even able to get a home mortgage in the
first place. But part and parcel of using an adjustable rate mortgage
intelligently is planning to protect yourself from unwieldy interest rate hikes
in the future. Most people who get an ARM to buy a home should be planning
ahead to either refinance into a fixed rate mortgage or sell their home before
this eventuality occurs.
There are actually several good
reasons for making such a move, not only to get yourself a fixed (and hopefully
better) interest rate on your loan. People also refinance ARMs to get cash out
for home improvements and other big expenses, and to consolidate debt.
Whatever your reasons, if you're
thinking of refinancing that ARM, you're probably thinking clearly, and doing
yourself a big favor. But to be sure, read on…
To make sure the timing is right
in your refinancing endeavor, be clear on the terms of your existing loan.
- When
and how often will it adjust
- How
much will it adjust
- Is
there a cap (a maximum rate beyond which it will get no higher no matter
what the economic circumstances)
- Is
there a prepayment penalty for refinancing and if so, how much
You also want to consider how long
you're planning to live in your home. If you're thinking of moving within a
couple of years, for example, then the closing costs for a refi may not be
worth the small savings you'll get in interest rate reduction. (Incidentally,
one way to save yourself on these costs up front is to roll them in to your
refi - in other words).
As with getting any mortgage,
getting a refi involves the same preparation, including calculating the costs
involved and knowing your credit before you apply.
The peace of mind that often
comes from home ownership can easily be thwarted by fears of rising interest
rates. To protect yourself, and reclaim the peace of mind that should be yours,
and could be again, consider whether now may be the right time to try to
refinance that adjustable rate mortgage into a fixed rate mortgage. A fixed
rate is a rate you can rely on, and it may just help you sleep better at night
in that home you own.