Today’s mortgage crisis has many homeowners worried. The adjustable rate mortgage or ARM that seemed a fine idea in the days of low interest rates and a strong economy now may already have left you with unaffordable house payments, or those may be coming in the near future. With foreclosureson the rise, the time has come to convert that ARM to a fixed rate loan. While the mortgage industry is tightening its belt, you can still find reasonable loan rates, especially if you have some home equity or good credit.
Some 18% of all mortgages in the US today are adjustable rate loans. From 2003 to 2005, the ARM seemed an attractive option. It often offered a lower rate than fixed rate loans, and many lenders widely advertised the benefits of this type of loan. With the economy on a downswing, how much will your payments go up? If the prime interest rate increases by 2%, your monthly payments could increase by as much as 30 to 50%. Not surprisingly, this kind of increase is more than most budgets can absorb without significant difficulty.
Should you refinance? The most common guideline regarding loan refinancing is rather simple. If you will save $5000 or more by refinancing, it is financially the smart choice. Whether or not refinancing is right for you may depend upon your credit, your current loan terms, and how long you expect to live in your home. You may find the mortgage refinance calculator at decisionaide.com/MPCalculators a helpful resource when running the numbers to make your decision. If you have already tapped out your home equity, refinancing may not be an option. Recent mortgage relief laws may be able to assist some homeowners in financial crisis with refinancing options for their mortgages.
If you do choose to refinance your home mortgage, be wary of questionable lending practices. While the mortgage industry is reducing the availability ofhigh-risk loans, you may still find pressure to refinance your current ARM into a new adjustable rate loan. This is, unless you expect to sell your home before the rates adjust or reset, often a poor choice. You may find that refinancing into a fixed rate loan increases your monthly payments due to higher interest rates; however, you also have the security of knowing that your rates will not change. Take the time to shop around a bit for the right fixed rate loan, and the best interest rate for which you can qualify. While you do not need to run scared from the current adjustable mortgage rate crisis, taking the time to understand your current loan and make smart choices can only benefit you in the long term.
How to make a loan modification on your existing home mortgage.