REFINANCE » Refinance Your Mortgage

Potential home buyers not only need to decide on where and what they are going to purchase but how they are actually going to finance the transaction. With the variety of mortgages out there, the options may seem overwhelming and confusing. One thing that can help with the decision making process is conducting appropriate research on the different mortgage types, and then figuring out how it may work best for you. One such option available are adjustable rate mortgages (ARMs).

ARMs are a type of long term loan where the financial institution will offer borrowers lower rates than the national average for a traditional fixed rate mortgage. The reason for the discounted rate is twofold as the rates will reset and can go up or down during the lifetime of the loan and the borrower is assuming the risk, not the mortgage provider.

Getting the most out of an adjustable rate mortgage is influenced by a couple of conditions, one is the market and the other is your long term plan. If you are considering refinancing your current mortgage with an ARM, you must do so as a way to hedge your bet.

For example: If you committed to paying 8.5% on your loan, and you commit to an ARM with 7%, you must be doing so as your belief is that the rates will continue to decline and you will get even lower mortgage interest rates.

Your long term plans are also a huge consideration when refinancing with an adjustable rate mortgage. If you plan on only being in your home for a couple of more years and want to save the most money during that time period, the starting interest of an adjustable rate mortgage should be lower then that of a traditional fixed rate mortgage.

Those with fair credit scores often do not have a choice but to refinance with an adjustable rate mortgage. But that may not be bad news. If by accepting the terms of your new ARM, watching the calendar closely for readjustment periods and working diligently by making all the payments on time to improve your credit score in between, you may be able to use this experience to your advantage. If after a couple years of effort and the long term goal of staying in your home for a long period of time, you can then refinance into any type of mortgage you desire.

To ensure that you get the best refinancing rate on your new mortgage it is important that you shop around. Remember every financial institution is able to take advantage of the lowered rates as it is backed by a Federal cut, not an independent promotion. Although you should expect to pay anywhere from 2%-3% of the total loan value in closing fees, by doing your research you can cost your expenses.

For Example: Consider Janice, a first time condo shopper in the L.A. market. She bought her new pad in August of 2008 and decided to take advantage of the low refinancing rates that were available. On the advice of her accountant she worked diligently to secure a loan where the fees would be repaid back by her savings in under two years.

Her quest first started at her local bank branch but quickly ended when they promised a, then, low interest rate of 4.9%, but there were additional points (a point is equal to 1 % of the total mortgage value) that would have jacked up her total costs to an unacceptable rate. After searching the web and shopping around, she finally settled on using the resources courtesy of her managed portfolio. Not only were there no points required to lock in the 4.875% rate (mortgages for condos tend to be a bit higher than the going rate for free standing homes), but they cut many of her other closing costs as she had a substantial amount of money on deposit with them.

Even if the bank or financial institution you normally do business with does not have an enticing offer, there are plenty of other options available for refinancing your loan. One great place to start conducting your research is right here on Go Banking Rates.

With historic lows available for mortgages, consumers are going bonkers and flooding financial institutions with applications. In this new world of mortgage loans only the strong will survive and that means those with excellent credit, a minimum of 20% equity in their home, and very little (other) financial obligations can tap into rates that are falling between the 4.5%-4.75% range (for traditionally 30-year fixed rate mortgages).

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