Home Mortgage Refinance Loan: Fixed Interest Rate or Adjustable Rate Mortgage

If you are in the process of taking out a new home mortgage refinance loan, choosing the right type of loan for your situation could save you thousands of dollars. Home mortgage refinance loans fall into two basic categories depending on the type of interest rate. Here are several tips to help you choose the best home mortgage refinance loan for your situation.

When deciding if you should choose an Adjustable Rate Mortgage (ARM) or a fixed mortgage interest rate for your home mortgage refinance loan, there are a number of factors you need to consider including your tolerance for financial risk. Many homeowners choose fixed rate mortgages because they’ve been told when interest rates go up their payments will skyrocket. Many of these homeowners could benefit from Adjustable Rate Mortgages and overpay for their loans because they receive bad advice.

Adjustable Rate Mortgage loans have safety features build into them to limit your risk and if you understand what you’re getting into you can leverage an Adjustable Rate Mortgage to your advantage. These Adjustable Rate Mortgage safety features are called caps and come in three different varieties. Periodic caps limit the amount your mortgage lender can raise your interest rate each adjustment, payment caps limit the amount your payment can go up with each adjustment, and lifetime caps limit the amount of change over the term of your loan. If you choose an adjustable interest rate for your home mortgage refinance loan make sure it has all three caps.

Adjustable Rate Mortgages are especially useful for homeowners that are only keeping their homes for a short period of time. If you are planning on moving in five years or less, the introductory period on most ARM loans could save you thousands of dollars over a fixed rate mortgage. Why take out a traditional 30 year fixed rate home mortgage refinance loan when you’ll be selling your home much sooner?

Author: Louie Latour