Have Your Mortgage Payments Gone Up?
If you are like a lot of home buyers, you may have chosen an adjustable-rate mortgage to take advantage of introductory interest rates that kept your payments low for the first few years of owning your home. Also like a lot of homeowners, you may now be faced with rising payments as those introductory rates expire. You may already be feeling the pinch. Or you may be shouldering the increased payment burden fine for now, but the prospect of continued payment increases may be keeping you up at night. Refinancing could be a good way to ease the squeeze.
How to stabilize your payments
There are two ways to stabilize your payments. The first is to refinance into a fixed-rate mortgage. This will keep your payment the same for as long as you own your home. This is an especially good option if you plan to stay in your home for a long time.
If you are planning on staying in your home for a short period of time, another option is to refinance into another adjustable-rate mortgage, with an initial fixed rate period (usually three to five years). The benefit of adjustable-rate mortgages is that they may carry lower interest rates (and therefore monthly payments) than fixed-rate mortgages. This is because the borrower – you – are accepting more risk. (Think of the higher interest rate on a fixed-rate mortgage as a kind of insurance policy against future rate increases.) Just keep in mind that if you refinance into another adjustable-rate mortgage, you may find yourself facing rising payments again after the fixed rate expires.
Just because you can lower your payment by refinancing, doesn’t mean you should. (True of a lot of things.) It’s important to compare the cost of refinancing (usually 3-6% of the loan amount) with how much you will save on your payment. Let’s say you are considering refinancing your $200,000 mortgage to save $200 a month on your payment. Let’s further assume closing costs are $6,000 (3% of $200,000). It will take you two and a half years to recoup the cost of refinancing ($6,000 divided by $200 = 30 months). If you’re planning on staying in your home for two and a half years or more, it probably makes sense to refinance.
Get Started Now!
- Check Your Credit Report & Credit Score now!
- Start a Loan Request
- Sign up for our News Feeds
- Have Questions? Call 1-800-GET-SMART (1-800-438-7627)
