by Craig Romero, Mortgage Analyst, www.wisemortgageinfo.com
Mortgage rates are at all-time lows, enticing homeowners across the nation to refinance their homes. It used to be that an ARM was a popular mortgage choice; a choice that enabled home buyers to get an initially low mortgage rate that increased gradually over time.
With mortgage rates at all-time lows, it’s time for the homeowners who took advantage of the ARM rates of the past to refinance at extremely low fixed rates now and lock in rates lower than the ARM rates they initially obtained.
Many homeowners wonder why they should refinance their ARMs when they are already paying a low interest rate. The answer is pretty straightforward; their rate won’t be that low forever. Mortgage experts are recommending that home buyers avoid ARMs and homeowners with ARMs refinance and lock in a fixed-rate mortgage now while rates are significantly low.
Homeowners who do not make this move risk paying increasingly higher interest rates in the near future, and if rates jump up drastically, it could be devastating to their finances.
Even if rates don’t increase dramatically, ARMs are normally charged at the treasury rate plus 2.75 percentage points and can increase up to two percent per year after that. In the event that rates don’t increase, you’ll wind up paying more the second year due to the point addition.
With a fixed-rate mortgage, the interest rate you obtain at the beginning of your loan is locked in over the lifetime of your loan and there is no risk that your rate will increase.
Even if mortgage rates jump up to ten percent, homeowners with fixed-rate mortgages are safe and secure and locked in at their current rate, providing a certain sense of financial security.
So is there ever a good reason to have an ARM? Yes, when you plan on staying in the home five years or less. In those circumstances, five-year ARMs are a good choice for home buyers and offer them the opportunity to save money without the risk of being hit with significantly increasing interest rates.
In all other situations, refinancing to a fixed-rate mortgage is the wiser thing to do.
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