When it comes to refinancing your mortgage, it is more than simply considering the interest rates. It is not all about seeking out the lowest rate of interest. In fact, many times, the mortgage terms are reason enough to seek mortgage refinance.
While there are several reasons that might lead you to refinance your mortgage, changing from an adjustable rate to a fixed-rate loan is the most common of all. There is a single difference between these two loans.
An adjustable or variable interest loan is just what the name says. Every month you will have a different payment to make. The amount is designated or decided by certain lenders depending upon the current prime rate of interest. There are some obvious negative aspects of this kind of a loan.
The most inconvenient of all is that the borrower will never know how much exactly they will be paying this month. While payments do not fluctuate a lot, there is always a little variation.
If you happen to miss any payment for whatever reason, you will end up paying ridiculously high interest for the missed payment or late fees. This is true even if you missed it because of an oversight owing to the fact that you were not aware of how much you had actually to pay.
Therefore, stability is one of the prime reasons that people seek to refinance their mortgage.
Now you would say that if people want stability then why go for adjustable or variable interest loans in the first place. The reason is that some years back, the market saw great fluctuations in interest rates.
While rates are quite steady at present, it is always possible that they will go up at any time. That is a reason for seeking mortgage refinance. Even if the rates of interest shoot up, you are at least secure in the knowledge that your loan is secure in a certain specified rate.
On the other hand, if the rates were to drop significantly, you would be stuck paying a high interest when others were paying a lower one. Therefore, it is all up to you to decide if you want to take the risk.
At times, the situation of the borrower does not allow them to go for a fixed-rate loan. However, you can better your position by regularly paying for your present loan. This might allow you to qualify for a loan that offers better terms.
In fact, if you have been “good” and made your payments in time and the lender is convinced that you are completely willing to satisfy the terms and conditions of the better loan then they might offer you that. in this case, mortgage refinance might be a better option.