If you currently have an adjustable rate mortgage, you may want to consider refinancing your mortgage at the current low fixed interest rate mortgages available. There are several factors to consider before you make this very important decision.
How Long Do You Plan On Living In Your Home?
There are many costs involved with refinancing a mortgage. These costs can add up to 3% of the total amount of the loan that is refinanced. If you don’t plan on living in your house for at least 2 years, these costs may outweigh any potential savings that you will reap.
What Is The Interest Rate Differential?
When you refinance into a fixed rate mortgage from an adjustable rate mortgage you will usually pay a slightly higher interest rate on the fixed rate mortgage. This differential is required to compensate the lender for the higher risk that they incur on a long term fixed rate mortgage.
Where Do You See Interest Rates Headed?
If you think that interest rates are likely to decrease farther, then you may want to hold off on refinancing your adjustable rate mortgage. Your interest rate will decrease as overall interest rates decline. On the other hand, if you are unsure of the direction of interest rates, or feel that they will increase, then now is a great time to refinance your adjustable rate mortgage and lock in the current low interest rates for the remainder of your loan.
Other Factors To Consider
Interest rates are currently at 25 year lows. The likelihood of them declining more is not as high as the likelihood of interest rates increasing from these levels. If (when ) the economy recovers there will be more demand for money and lenders can charge more on loans as demand increases for money. If inflation increases, then lenders increase interest rates to offset the declining value of the money they lend.
Conclusion
Whether, or not, it is time to refinance your adjustable rate mortgage depends on your particular situation and your outlook on the future of the economy.
Related posts:
- What Are The Risks Of Adjustable Rate Refinancing?
- What is an Adjustable or Fixed rate Mortgage?
- What Are the Risks of Adjustable Rate Mortgage Refinancing?
View full mortgage loans post on US Mortgage Rates
Tags: fixed rate mortgage, time, fixed interest rate mortgages, Differential
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