Refinancing can have other financial benefits besides lowering
rates. Locking in rates can protect you from higher rates,
saving you money on future interest costs. You can also change
your ARM for better caps to prevent huge monthly increases.
Consolidating your bills with your equity saves on credit card
rates while providing a tax advantage.
Protection From Future Rate Hikes
An adjustable rate mortgage (ARM) provides the lowest rates for
home buyers, but these rates can increase. Monthly payments can
jump a couple of hundred dollars a month depending on market
rates and loan caps.
For those planning to stay in their home for more than seven
years, it is a good idea to refinance to a fixed-rate mortgage
if rates look likely to rise. Fixed-rate mortgages offer
security from future payment hikes, but with slightly higher
rates than ARMs.
Trading In For Better Caps
Many ARMs offer initial low set rates that can change after a
couple of years. Jumps in payments can be surprising, especially
if you have less than favorable caps. Caps set limits on how
much and how often your payments can increase.
Refinancing your ARM can help you negotiate lower caps. You can
also find an ARM with set rates for several years, just like
with your original mortgage.
Helping To Pay Off Your Loan
Early payment of your home loan saves on interest costs. For
those you need a structured approach to make larger payments,
refinancing for a shorter term may be the answer.
For instance, exchanging your 30 year mortgage for a 15 year
mortgage can reduce your interest costs by almost half, even at
the same rate. Even with the origination costs, early payment
will still save you money.
Taking The Tax Advantage
Mortgage interest is tax deductible, unlike interest on other
bills. Cashing out part of your equity to pay off bills can give
you a financial edge to get ahead. Be sure to make refinancing
part of your larger financial goals to enjoy the full benefits.
Investigating Lenders
Investigate lenders before you sign a contract to be sure you
are getting the best financial offers. Ask about their APR to
get a true understanding of the loan costs. Many financial
companies post this information online, or you can request near
instant quotes.
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