Is An Adjustable-Rate Mortgage Or A Fixed-Rate Mortgage Better Refinancing Your Home Mortgage Loan – Refinance Your Adjustable Rate Mortgage

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Refinancing Your Home Mortgage Loan – Refinance Your Adjustable Rate Mortgage

Refinancing an adjustable rate mortgage (ARM) is a common practice for borrowers. However, it may not always be the best option. Depending on how high interest rates rise, there are times when you could end up spending more on your mortgage conversion than you would have saved with a low interest rate.

Add the Expenses

Before you jump on a refinancing offer, consider upfront costs. To refinance a $100,000 loan, you can expect loan fees to range from $1000 to $3000. This does not include points for lower rates.

In order to recoup these initial costs, you need to plan to spend several years in your home. Also, if you only have a couple of years left on your mortgage, you may be better off with your original mortgage.

Refinancing benefits

Locking in a low rate is the most common benefit of refinancing an ARM. By converting to a fixed rate mortgage, you’re guaranteed a low interest rate without worrying about annual interest rate fluctuations.

You can also build your equity sooner by converting to a bi-weekly mortgage or short-term loan. With higher monthly payments, you can potentially save thousands on interest payments.

When not to refinance

With an ARM there is always some risk involved, but there are times when keeping your ARM makes financial sense. For example, unless interest rates rise more than a couple of percentage points over the course of your loan, you will probably pay more in loan fees than you will save. You should also keep your ARM if current rates are only 1% or lower than your ARM rate.

You may also want to keep your ARM if you plan to move soon. With homeowners moving within seven years of buying a home, it doesn’t make sense to refinance when you won’t recoup the costs.

Choose a lender

As with any mortgage, you want to make sure you’ve researched several lenders before choosing one. Ask for quotes on both rates and fees. You will need to add up the total costs to get the best financing package. You can also use the internet to find online mortgage lenders. Many times these banks will offer lower interest rates or lower closing costs to stay competitive.

To see our list of recommended refinance mortgage lenders online, visit this page: Recommended Mortgage

Refinance Lenders Online.

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