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Today Is The Best Time To Refinance An Arm Mortgage

January 29th, 2012

Finally having your own home is a dream come true, but it can also be such a problem if you’re paying very high interest rates, and this is where refinancing comes in.

Before you go buying a house, you have to know the different mortgages available, and find a financial solution that would make your loan easier to pay.

You can go for adjustable rate mortgage (ARM) is a good option, since it has interest rates that are adjusted regularly but keeps within the same ratio.

ARM mortgages are often compared with Treasury bill rates, since their fluctuation is based on a pre-selected index. An ARM usually has limits on the interest rate increases and on the adjustment frequency, which is good news because you’ll get protection from paying too high an amount per month.

Another advantage when it comes to buying an ARM mortgage for refinancing is the fact of initial lower interest rates with continuous adjustments over a period of time or the life of the mortgages or loan.

You can buy mortgages for 15 or 30 years with fixed interest rates, but this can be reduced if you use an ARM to refinance. Benefits from resetting your monthly payments apply immediately after switching to this option, especially when you are planning to sell your home within a few years.

Nowadays, it’s even more convenient to use ARM because of the recent drop in interest rates.

Why should you consider refinancing now? Among the many benefits that an ARM mortgage offers, including a lower interest rate and monthly payment, refinancing allows you to build equity in your home faster because your loan term is shortened, or draw an actual equity through the so-called cash-out refinance.

However, it is necessary to keep in mind a few considerations before shopping for a new ARM mortgage for refinancing your actual mortgage. For one thing, you have to compare the interest rates of your current mortgage with that of the ARM, as well as the total cost.

Your current credit status, income, the time that you plan to live in your home, and the equity that you’ve built in that home are the other factors that you have to think about.

The requirement for many lenders is that there should be at 5% of built equity in your property. If you want to build equity faster, go with short-term mortgages, but you should know that these have higher monthly payments. Hence, analyze if you are candidate for refinancing and if the answer is yes, apply now!

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Posted in Finance: Loans, Finance: Mortgage, General Interest, Real Estate: Mortgage Refinance

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Great Ideas On How You Can Save Money On Your Mortgage

January 27th, 2012

It is understandable that the top priority of most home buyers who are looking for mortgage is to get the lowest monthly payment. However, looking at how much it’s going to cost you over the long term, in both interest payments and fees is an even better idea. If you look at these costs, then you can save a significant amount over the years.

Even if you already have a mortgage, there are still a number of strategies you can use to reduce the total amount of interest you’ll pay. Most of these accelerate the speed with which you repay the loan, and that reduces your long-term interest costs.

If you want to reduce the long-term cost of your mortgage, then here are several ways you can do so.

Try to compare offers
When you are shopping for a mortgage, it always pays to get offers from several lenders. Offers can vary substantially. Especially if your credit is considered sub-prime, you shouldn’t accept a high-interest rate mortgage without looking for a better offer.

Try to consider fees
One factor that increases the cost of your mortgage is the fees or points lenders add onto the deal. Be sure to look at them carefully and don’t be reluctant to challenge fees that seem too high. You can use the annual percentage rate (APR), which includes both the interest rate and the fees if you want to compare offers.

Shorten the term
If you intend to be in the house for some time, you can lower your interest costs substantially by choosing a shorter mortgage term. Not only will this enable you to save significantly over the life of the loan, but you will also increase your monthly payment. Aside from that, it may also enable you to get a reduced rate on the mortgage. For instance, if you choose a 15-year term at 5.75 percent versus a 30-year term at 6 percent, then you can save $66,364 over the life of a $100,000 mortgage.

Pay bi-weekly
Consider paying your mortgage every two weeks instead of monthly. While you will hardly notice the difference, this can still cut the amount of interest you pay since your principal decreases more steadily. There are26 two-week periods in the year which means that you actually make an extra monthly payment each year, further shrinking the principal.

Cut the PMI
You may be required to take out private mortgage insurance (PMI) if your down payment happens to be less than 20 percent of the house price. However, you can petition your lender to cancel the insurance once your mortgage principal decreases to 80 percent of the home’s value. Before this could happen, you have to repay some of the principal or if the home’s value rises quickly. While savings should make the expense worthwhile, you may have to have the house reappraised.

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Posted in Finance: Loans, Finance: Mortgage, General Interest, Real Estate: Mortgage Refinance

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Refinancing Later Definitely Not Good

January 24th, 2012

Buying a house is a proposition that’s quite expensive. This is the only thing that a lot of people will buy and it will take them decades to pay off. This is definitely not something that buyers will enter into lightly. The financial demands are significant and the payment has to be made each and every month for the next thirty years or so. Adding to the complexities of the process are the current sky-high prices of housing and the fact that interest rates are steadily rising. This adds up to a situation where many buyers may find themselves looking at loans they can barely afford to pay.

Lenders are aware of these market situations that have made buying a home a difficult endeavor. A wide variety of loan options in order to meet the needs of just about anyone is created as a response of the industry. But terms that can make buying a home somewhat of a risky proposition are offered by some of these loans. Option ARM and interest-only loans can both shock buyers several years down the road when they adjust, creating huge increases in the monthly payments. Yet sometimes, when the buyer asks about these things, the lender will reply with “You can refinance later.”

In theory, that is true. Assuming that the loan has no overly expensive early payment penalty, the buyer should be able to refinance at any time. But it is one thing to be able to refinance and it is another thing to have market conditions that make refinancing a smart move. The late 1970s is something most people can remember when interest rates for houses topped 15%. While rates have been near historic lows recently, there is no guarantee that they will not rise to that level again. If they do, refinancing, while possible, would certainly be a bad idea.

You may be aware that there are other unforeseen circumstances that might arise besides interest rates. You might have to take a pay cut and the economy might take a downturn. It’s also possible for the market to soften and cause property values to decline. Because of these, it is likely that you could refinance a house that you can only barely afford difficult or even impossible several years from now.

When a lender points out that you can always refinance later, he or she is generally telling the truth. But taking out a home loan with terms that are stretching your finances now while assuming that you can make it better later by refinancing is poor financial planning. If refinancing later is a necessity because the loan you are considering is expensive, then it’s possible that you probably buying a house that you cannot afford.

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Posted in Finance: Loans, Finance: Mortgage, General Interest, Real Estate: Mortgage Refinance

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