Payments Rising? Refinancing Adjustable Rate Mortgage Loans
The popularity of adjustable-rate mortgages means that nearly 25% of all outstanding U.S. mortgage debt is due for an interest-rate reset within the next two years, according to Economy.com, a Web site run by Moody's Corp. Some $400 billion in loans will get a new rate this year, and another $2 trillion are set to move in 2007. With rates on the rise, it is good idea to start weighing your options. Interest rates have gone up considerably during the past few months and now could be the time to lock in on a fixed-rate mortgage.
What if my ARM rates are lower than the current rates for a fixed-rate mortgage? While it's more common for people to refinance their mortgages into lower rates, there are a lot of people switching from adjustable rate mortgages (ARMs) to higher fixed-rate loans. Why? Holden Lewis from BankRate.com gives these three reasons in his article "Refinancing out of an adjustable-rate mortgage (ARM)":
First, some refinance after deciding to keep the house longer than they originally intended. Second, some refinance because it's easier to make firm plans for the future if their mortgage rates can't fluctuate. Finally, some have simply changed their minds about mortgage rates, and think they're headed up for a long time.
Length of ownership seems to be the most-common deciding factor when people switch from ARMs to higher-rate fixed-rate loans. Debt consolidation is another deciding factor with the new bankruptcy laws making it harder for people to file for bankruptcy. If you have an ARM, you could cash out your home equity and consolidate your high-interest bills into a fixed-rate debt consolidation mortgage loan.
Historically, interest rates have hovered near 10 percent, so it's not unreasonable to expect them to return to that double-digit territory as the economy cycles through a downturn. If you plan on staying in your home for the long term, and you want the predictability and security of paying the same interest rate for the life of the loan, no matter how high interest rates get, a fixed-rate mortgage is a great choice.
"There is still time to get off the tracks before the train gets closer, but people need to act now. A 7% mortgage today beats an 8% refi a few months from now," says Greg McBride, senior editor at Bankrate.com.
Mary is a web writer who has published several finance related articles. For more home loan information online, go to: Second Mortgage Refinancing. For more 2nd mortgage advice & home equity refinancing tips, visit Mortgage Refinance Loans and Smart Home Equity Refinance.
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