Mortgage Refinancing - A Fixed Rate Mortgage May Be Your Best Option
One of the first decisions you will have to make when applying for a mortgage is whether you want a fixed rate mortgage, or a mortgage with an adjustable interest rate.A fixed rate mortgage is exactly what it’s name implies. The interest rate on the mortgage will remain fixed throughout the term of the loan. No matter how the economy effects the prevailing interest rate, whether it goes up or down, your interest rate will remain the same.Depending on the state of the economy, having your mortgage rate fixed can be both an advantage, or a disadvantage. If interest rates are rising, you are protected from any increases because your rate is locked in. If you had purchased your home within the last few years you had the opportunity to finance your mortgage at rates that were historically low. Since that time, interest rates have been slowly on the rise.Homeowners who financed with adjustable rate mortgages will see their monthly payments increase right along with interest rates. Those who choose an adjustable rate mortgage because it was the only way to afford their home at the time, may find themselves struggling to meet their increased mortgage payments. Many will have to sell their home.Those historically low rates have provided an excellent opportunity to finance your home with a locked in low rate for the life of the loan. The higher mortgage rates go, the more money saved with a mortgage having a fixed rate.If interest rates were to drop below your rate, you would find yourself making a higher payment as a result of being locked into your interest rate. However, this is unlikely due to the record setting low interest rates currently available. If you should find yourself in this position, you have the option of refinancing your loan at current rates. Doing so will subject you to additional fees. So, if the difference in interest rates is minimal, you may want to reconsider refinancing your mortgage.Why do fixed rate mortgages come with a little higher interest rate? Simple really; the lender is assuming a greater risk of the interest rates rising over the life of the loan.Keep in mind that even with an interest rate that is fixed, other factors may cause your payment to rise. Many lenders require the borrower to pay extra into an escrow account. The money in this escrow account is used to cover your property taxes, as well as your homeowner’s insurance. Should either of these costs go up, it will be reflected in your monthly payment.15 year term, or 30 year term? Having decided on a fixed rate mortgage, you will now have to decide on the term of the loan. While the most common mortgage terms are for either 15 or 30 years, longer term mortgages are starting to become more readily available.The big difference in your loan term will be reflected in your monthly payment. Which term you choose will depend on your current, and future financial circumstances. Equity in your home will build much faster with a fifteen year mortgage, you will save thousands in interest, but your monthly payment will be substantially higher.Copyright 2007 Carl DiNello
