(ARA) - One of the primary questions most homeowners face is whether a long-term, fixed-rate or an adjustable-rate mortgage is the best choice for refinancing their home loan.
While there is no way to predict exactly when and how much interest rates will increase or decrease over time, a fixed-rate loan is a generally a smart option for many qualified homebuyers. If you anticipate living in your new home for some time, and desire the certainty of a monthly mortgage payment that does not fluctuate or adjust (except if property taxes, which can fluctuate from year to year, are escrowed as part of the monthly payment), start by looking at a fixed-rate loan when you go mortgage shopping.
Consider the Hernandez family. Three years ago, they purchased a three-bedroom home. Like most families, the Hernandez's dreamed of being homeowners and with interest rates at an all-time low, they took advantage of a low money down program and secured an adjustable rate mortgage with a five-year introductory interest rate of 4.875 percent.
Knowing that at the end of their five-year term their interest rate could increase to over 7 percent, the Hernandez's recently opted to refinance their mortgage and locked into a 30-year fixed rate of 6.75 percent. Though they pay a slightly higher interest rate for the remainder of their five-year term, they can rest assured that they have locked in at a historically low rate and will have predictable monthly payments for the life of their mortgage.
"Making a change in your mortgage could mean saving thousands of dollars and keeping your monthly mortgage payment low," says Ennio Garcia-Miera, a vice president at GMAC Mortgage. "Your decision to refinance should include how long you plan to stay in your house, the rate on your current mortgage, when that rate will begin to adjust, how high the rate can go and whether your loan carries a prepayment penalty (for paying it off early). Before changing any terms on your mortgage, be sure to consult with your financial advisor because although the amount you pay on a monthly basis may decrease, you may increase the overall number of monthly payments you have to make over the term of the loan."
Many homebuyers, such as the Hernandez's, took advantage of securing a home with a low adjustable interest rate. Now that homebuyers are facing higher interest rates in the near future, they are deciding whether to refinance. Review your options and find out if a fixed-rate is right for you. Courtesy of ARA Content
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