Home Affordable Refinance Rates – 3 Reasons Why Fixed Rate Mortgage Loans Make Sense
Adjustable rate mortgages are a great program for mortgage borrowers who wish for their monthly payment to be fixed for an even longer period of time. The adjustable rates are usually more appealing than the fixed rate program because the payments are variable for a longer period. A fixed rate plan may offer a borrower more purchasing power because the interest rates are typically higher. But for those who wish to lock in their interest at a specific rate, an ARM program offers a flexible solution.
Ten year ARM programs can lock in interest at a specific rate for an introductory period of two months. During this introductory period, the borrower makes interest only payments and does not make payments on the principal balance. At the end of this two month period, the new fixed rate will be applied and the old adjustable rate mortgages will be repaid. With ten year adjustable rate mortgages, your monthly payment can be significantly reduced if you choose to refinance during this introductory period.
Some borrowers choose to have the interest rate completely reset to their target rate. If you choose to have your interest rate reset to a new amount, your monthly payments will be recalculated using the new loan amount and any outstanding debt and fees will be adjusted for these charges. This effectively resets your loan to current conditions with a new target interest rate. However, while resetting your ARM, you will not receive any discounts or advantages on your loans.
Some people like the idea of resetting their ARM because it allows them to use their money for other investments or lifestyle choices. One disadvantage of resetting your ARM is that you will lose any potential cash value you have built up during the term of your loan. Any savings that you accrue between the time you reset your ARM and the time you settle your adjustable rate mortgages will also be lost. The only exception to this would be if you were able to refinance your adjustable rate mortgage and you choose to have your ARM reset at a lower amount. In this case, your monthly payments would be lower but you would likely have no benefit from a 30 year fixed rate.
It is important to be aware that with a 30 year fixed rate period on adjustable rate mortgages, your home can become a higher priced investment after the period has expired. If the market conditions change and interest rates fall below the introductory interest rate on your adjustable rate mortgage loans, your home could become worth considerably less than the amount you owe. Therefore, it is wise to use your savings and investments wisely by protecting them through longer duration ARM contracts. With a longer duration, you will build a stronger financial foundation and will be better prepared to weather the storm that is sure to come when the market rises again.
One of the great things about fixed term ARM loans and conventional conforming loans is that you can make small monthly payments that will not erode your budget too severely. You can also make larger monthly payments if you need to. However, many people who wish to protect their families’ financial interests prefer to use the conventional conforming loans and spread out the payment to ensure that they do not become overextended. Once the term of the loan expires, the homeowner will still have a relatively affordable home to live in until they can purchase again.
One of the most attractive benefits of using fixed term mortgages and 10 year ARM rates for your primary residence is that you will avoid paying any taxes or insurance on the loan. One of the major tax advantages of owning a primary residence is that your home will gain in value over time. Depending on your home’s tax rating, over the course of an average 30-year period, your home might gain as much as 100 percent of its original value. This tax advantage is one of the reasons why Fannie Mae and Freddie Mac offer home affordable refinance options, and why they are some of the best mortgage brokers you can work with. With Fannie Mae and Freddie Mac, homeowners do not have to pay property appraisal fees or any other costs associated with refinancing their loans.
Fixed rate mortgage loans and conventional conforming loans allow you to get cash sooner rather than later. While you might not be able to take advantage of all the advantages offered by refinancing your loans early, you can certainly wait to receive a big tax break, a larger payment, or both until your home has increased in value. For example, a homeowner who purchases their primary residence using a conventional conforming loan may be able to deduct a portion of the interest paid on this loan from their income taxes if their home is worth more than what they owe on it. Because you can delay making the monthly payments until your property appreciates in value, you can easily save yourself hundreds of dollars in interest costs over the course of a couple of years.