ARM (Adjustable Rate Mortgage) Refinancing |
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Adjustable Rate Mortgage Refinancing is changing. Everyone
was going from their thirty-year fixed to their A.R.M., but now the reverse is
true. When we live in a rate-dropping environment, an adjustable rate mortgage
is great because every time the loan adjusts it adjusts down. However, in a
rising rate environment there is one key to living safely on an adjustable rate
mortgage: make sure the fixed period is longer than you will need.
The fixed period is the beginning period of
the loan where the loan payment will not adjust. The options range from one
month to ten years; the shorter the period the lower the rate. Therefore, it is
crucial to understand your plan and needs. Furthermore, a good mortgage broker
will first listen to what your plan and goals are and secondly design a plan
unique to you. It is important for those refinancing into and adjustable rate
mortgage to understand whether they are long run in the house or short run. If
their needs are short run then it is wise to come up with a conservative
estimate on how long they are in the house. For example is someone would
estimate that they would live in a house for three years than it would be
recommended to get on a five year A.R.M. On the other hand, it someone is to
stay in their house for the rest of their life, than a long-run plan ought to
be put together. However, sometimes we find that our customer wants to stay in
the house long run but have short run loan needs. Such as, next year the
customer wants to be in a fifteen-year fixed, however, it is not practical
right now until they pay off all of their debt. Sometimes these individuals
will refinance into an adjustable rate mortgage to get the lowest rate to free
up money to pay off their debt. Afterwards, they refinance into a fixed rate
mortgage.
To sum it up, an adjustable rate mortgage is not intended for
individuals to watch their interest rate adjust all over the place. Rather,
those investing their money on Wall Street only want to lock in at today’s rate
for only a limited period of time before they take a chance on the market being
better. Conversely, the borrower takes the chance that the market will be
better as well. So people use adjustable rate mortgages to pay the least amount
of interest if they play the market right. But these loans are not some game or
gamble, there are many practical applications for adjustable rate mortgages.
The most widely used is using A.R.M.s as transitional loans. Many subprime
borrowers get on adjustable rate mortgages while their credit is low because it
does not make sense to lock into a loan for thirty years, while your credit is
at its lowest point. Furthermore, people will refinance into adjustable rate
mortgages to give them a change to fix their credit on a lower interest rate
(A.R.M. rates are usually lower than that of a thirty-year fixed). Once the two
or three year A.R.M. is up, refinance into a lower thirty-year fixed rate on
your new credit score. What happens if interest rates begin to rise in the
meantime? Well over the past year, the
mortgage rates have increased which is causing many individuals who have
adjusting A.R.M.s to refinance into
fixed rates. The fixed rate market has held fairly steady for conforming loans.
Therefore, it is providing many individuals who need to extend their period of
no adjustments the chance to safely refinance their adjustable rate mortgage
back into a fixed rate mortgage.
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