Many of us will have to pay more for our mortgages in the coming months and years because our adjustable rate mortgages (ARMs) are starting to change. Some people's average payments can go from $600 per month to over $1,200 per month, which is a 100 percent increase. Unfortunately, these sudden jumps in monthly mortgage payments can be hard to deal with. If you find yourself in this situation, you might want to think about refinancing your mortgage so that you can stay in your house without worrying about your payments going up.
Adjustable rate mortgages are good for some people, especially those who only plan to live in their home for five years or less. Payments are often lower at first and for the first few years of a loan. As the loan goes on, payments change. Some people can't sell their homes because they want to stay in them for longer or because the market is so bad that they can't sell them. ARMs have become a big money drain for these people. Most of these people need to refinance in order to lock in a low interest rate and make sure that their monthly payments won't change.
When people refinance their mortgage, they often find that they can lower their monthly payment and save thousands of dollars in interest over the life of the loan. If you refinance to cut 1 percent off your interest rate on a $200,000 house, you could save up to $15,000 over the life of the loan. That's a lot of money that you could put to better use, like saving for your kids' college or remodelling part of your house.
The best thing about refinancing your mortgage is, of course, that you can turn your adjustable-rate mortgage into a traditional mortgage with a fixed interest rate and fixed monthly payments. Nothing stays the same for long, so it's possible that you'll have to refinance again in a few years to take advantage of another drop in interest payments.
Refinancing costs money. Usually, you'll pay for a home inspection, fees for preparing documents, and other costs that are similar to what you paid when you first bought your home. It is important to compare the cost of refinancing with how much you will save in the long run. People often find that the benefits are much greater than the costs. They don't mind paying a little up front because they will lock in your mortgage payment and, in many cases, lower your interest rate.
When you aren't sure how much your home mortgage payments will be, refinancing can help you get your finances back in order. It's the perfect tool for all home owners, no matter who they are or how much they owe on their home.
