Refinancing your home mortgage can be a great way to lower the overall cost of financing your home. Whether you’re just buying a home for the first time or are going through a refinance to reduce your mortgage costs, refinancing can help you pay off your mortgage quicker than you might imagine. If you are going through a refinance, you have many options at your disposal to lower the cost of your mortgage. Here is a look at some of these options:
o Adjustable Rate Mortgages – Most 30-year fixed-rate mortgages come with a low, Fixed-rate option and a higher, Adjustable-rate mortgage option. With this type of loan structure, the interest rates can change as the market fluctuates. A typical Adjustable Rate Mortgage has a start date, which is usually a year before the borrower purchases their home. After the initial purchase date, the interest rates may increase or decrease depending on economic conditions.
A Ten-Year Fixed-rate mortgage – A ten-year fixed-rate mortgage has a start date, which is usually a year before you purchase your home. The interest rates on a ten-year mortgage stay level for the entire life of the loan. However, if the mortgage starts to get heavy, homeowners may experience some negative consequences. One of these effects is increasing your monthly payment amount.
o ARM or adjustable rate mortgage – An ARM is a mortgage that features an interest rate that changes based on a predetermined index. This type of mortgage is also called a “floating mortgage.” Homeowners have the flexibility to choose between a variable and an ARM loan structure. Many homeowners opt for the adjustable-rate mortgage rates today because it offers a lower monthly payment amount, but it is more susceptible to changes in the market.
o Interest Only Mortgage – A lot of homeowners opt for interest only mortgage loans because of its lower payment amount. However, this type of loan features a start-up fee. Also, a lot of lenders opt for an interest only mortgage rates for first time homeowners since they offer lower rates. However, if homeowners fail to maintain their payments, interest rates could rise to a level that is much higher than those offered by other types of loan structures.
o Fixed-rate 30-year mortgages – Even though there are some risks involved with these kinds of loans, many homeowners find them to be very beneficial. For one, a fixed-rate 30-year mortgage has a lower start up cost, which means that more homeowners may be able to afford to buy their homes. Also, a fixed-rate 30-year mortgage has a longer payment term, which ensures that more affordable monthly payments are made.
o Amortization Scenario – Also known as an amortization, or payment phase, loan, a 30-year fixed mortgage allows borrowers to pay only the interest on their loan and does not include any payments or principal. Since it is a fixed mortgage, the interest rate cannot fluctuate over the course of the entire 30 years. However, if the interest rates drop below the applicable target, some lenders allow for early repayment of the principle.
o Ten-year mortgage loans – These are the best deals when it comes to affordable monthly payments. The biggest advantage of a ten-year mortgage loan is that borrowers can budget their payments according to their income. With these kinds of loans, borrowers can adjust their repayment schedule according to their financial ability.
o Floating-rate mortgage – A floating-rate loan is when a lender offers a variable-rate mortgage at a lower rate than the fixed rate. However, if the interest rates go up, so will your monthly payments. This is especially good for people who own residential real estate and want to lower their monthly outgoings. However, they have to remember that their home will be at risk should they choose to refinance their home. As with any loan, a lender can increase or decrease the loan’s interest rate at any time.
o ARM Loan – An adjustable-rate mortgage is another type of loan wherein a lender offers a lower rate of interest to borrow money for a period of 30 years. During this period, the monthly payments are adjusted according to the index reflecting the financial market. Some ARM loans have a cap on the number of payments that you have to make in a year. Usually, the cap is around five years and then the payments start decreasing.
There are various types of loans that you can take advantage of if you are looking to lower your monthly payments or save a little extra cash each month. But before you go out and search the market for these deals, it is important that you first decide how much you can comfortably afford to borrow. It is also important to remember that although a short-term loan may be cheaper to borrow, it is also more risky to borrow money that you cannot afford to repay in the long run. With all these considerations in mind, it is wise to first consider the advantages and disadvantages of each type of loan before deciding which one to get.