When deciding whether or not to refinance their mortgage, many people only look at the interest rates. But keep in mind that the mortgage is about more than just the interest rates. In many cases, the terms of the mortgage may be reason enough to refinance the mortgage.
The difference between a variable rate loan and a fixed rate loan is one of the most common problems that lead to a mortgage refinance. Only one very simple thing is different between the two. A loan with a variable rate is just what it sounds like. The loan payments change from month to month, and the borrower pays whatever amount is set by the current prime interest rate (a consensus among certain lenders of what interest rates should be). There are a few bad things about a mortgage with a variable rate.
The first and most annoying thing is that you never know exactly how much your mortgage payment will be this month. Payments may stay pretty steady, but they will always change in some way. Depending on the terms of your loan, you may have to pay late fees or very high interest on any part of the payment you don't make, even if you didn't know how much the payment should have been and just forgot. Some people want the stability that comes with fixed rates, which is one reason why they might want to refinance their mortgage with a fixed rate.
A few years ago, people liked variable rate mortgages because interest rates were all over the place. Even though rates are pretty stable right now, there is always a chance that they could all go up very quickly. That's another reason to look into refinancing your mortgage. If interest rates changed, you would know that your loan was set to a certain rate. Of course, if you lock yourself into a certain rate, you won't be able to take advantage of a drop in interest rates overall. You have to decide if the risk is worth it.
Sometimes, a borrower couldn't get the better loan terms, so they were stuck with a variable-rate mortgage. If that's the case, you might be able to get a loan with better terms after making payments on the one you already have for a while. If you've always made your payments on time and shown that you can and want to meet the loan's terms, your lender may be willing to give you better terms. In that case, you may be able to trade your variable-rate mortgage for a fixed-rate mortgage, and a mortgage refinance may be a very good option.
