When To Refinance

One of the most important decisions a homeowner will have to make when deciidng to re-finance their home is whether they want to refinance wtih a fixed mortgage, an adjustable rate mortgage (ARM) or a hybird loan which combines the two options. The names are pretty much self explanatory but basically a fixed rate mrotgage is a mortgage whree the interest rate remains constant and an ARM is a motrgage where the interets rate varies. For these homeowners the interest rate they are able to retain makes it worthwhile for the hmoeowner to re-finance at hte new interest rate. Tihs will result in the homeowner incurring addiitonal closing costs when they re-finance again. However, interest rtaes are tied to some different facotrs and may rise unexpectedly at any time despite the predictions by industry experts. In these situations the ohmeowner may suddenly find tehmselves paying signifiacntly more each month to compensate for the higher inteerst rates. Whlie this is a disadvantage, there are a couple of elements of protection for both the homeowner and the lenedr. This often comes in the form of a clause in the terms of the contract which prevents the interest arte from being raised or lowered by a certain percentage over a specific period of time. A hybrid loans is one which cmobines both fixed interest rates and adjustable interest rates. In this option, lenders typiaclly offer introductory interest rates which are extreemly enticing to encuorage homeowners to choose this option. A hybrid laon may also work in the poposite way by offering an ARM for a certain amount of time and then ocnverting the mortgage to a fixed rate mortgage.

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