Post Tagged with: "Fixed Rate"

From an ARM to a Fixed Rate: Should You Make the Switch?

someone signing a contract When it comes to refinancing a home loan, many are considering making the switch from an adjustable-rate mortgage (ARM) to a fixed-rate loan. If you are thinking of doing the same, keep in mind that this move makes sense if the interest rates are low. You should also, however, consider your personal circumstances and know what could happen if you decide to make the switch.

The Good Points

With a fixed-rate mortgage, you’ll have a stable monthly payment, with a principal and interest rates that will remain the same throughout the life of a mortgage. This is the opposite of an ARM, with loan payments and interest rates that can fluctuate depending on the market trends.

Refinance lenders in Phoenix note that the stability of a fixed-rate loan can make it easier for you to manage your monthly budget, as you know that your loan payments will be the same every month. It can also give you peace of mind, as your rates and payments won’t increase even if the market rates go up.

What You Should Think About

When compared to the initial/introductory period of an ARM (the period where interest rates remain fixed for a certain period), fixed-rate mortgages usually have higher interest rates. They may be generally considered risk free, but you cannot take advantage of decreased payments and rates if the market interest rates fall dramatically.

How Your Finances Will Be Affected

If you decide to refinance, you will have to pay closing costs. This is why it is best to determine your goal for making the switch. You should also aim to refinance for the right reasons like shortening your current loan term or lowering your interest rate.

If you, for instance, decide to extend the loan of your term, you are likely to pay more interest rates with a new loan. This is why experts suggest resisting the urge to refinance to a 30-year loan. While this will definitely lower your monthly payments, this will also increase the total amount of interest to be paid over the life of the mortgage.

Refinancing can be a good move if you do it for the right reasons. Talk to a lender today to more about refinancing and your options.

August 31, 2018 at 9:24 amFinance