Mortgage industry experts estimate that over one trillion dollars worth of adjustable mortgages will reset by the end of 2007. Almost half of these will be refinanced into new loans, including fixed mortgages, according to a news report in the Detroit Free Press.
With the cost of a 30-year fixed mortgage averaging 6.37% APR, slightly down .27% from a year ago, many homeowners will be looking to convert their existing three- or five-year teaser rate adjustables into a lower-priced, more predictable fixed-rate mortgage.
Re-financing your adjustable to a 30-year fixed rate can translate into an additional savings of $200 or more a month on a $250,000 mortgage loan payment. This is extra money that can be used to pay-down an existing higher-priced credit card (currently averaging of 12.15% APR nationally.)
Whether your goal is to reduce your monthly payment, cash-out some of the equity in your home, or get out of a mortgage product you don't like, the amount you save by refinancing can provide you with the added income you need to start a savings program or pay-off an existing debt.
Before you decide to refinance, here are some other questions you'll want to consider:
When does it make sense to refinance?
Decide how long you plan to live in the same house and if a fixed-rate mortgage makes sense. Let your goals (not necessarily the lowest short-term rate) influence what kind of mortgage you should get given your unique situation. Always comparison shop for the best rates online.
Will the added costs of refinancing my ARM offset the potential savings I can achieve by converting to a fixed-rate loan?
Before refinancing, research your options and understand how additional points, closing costs, or pre-payment penalties can affect your mortgage loan payment and/or add thousands of dollars to your closing costs. Determine whether spreading these costs over the course of a 30-year fixed loan, along with any ARM to fixed-loan a conversion fee if allowable, warrants switching over to a fixed-rate interest loan. While the interest rate may be lower, the savings may outweigh the benefits of your current ARM especially if it has an annual or lifetime cap.
While lowering your mortgage payment can put a few extra bucks back into you pocket, using that money wisely can be the difference between gaining control of your spending habits or going further into debt.
Source: Informa Research Services
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