House Refinance Center
Refinance - Get The Best ARM
| Refinancing with an ARM When you are ready to refinance your house, an adjustable rate mortgage could be the right loan for you. There have been plenty negative comments said in the last several months about ARMs. Some justifiably so. However, you are the one in control. You have to monitor and stay on top of the mortgage news and trends. Only you can pull the plug when the rates are moving against you. Cap the rate You must be sure there is a cap on the rate. Otherwise it could double or triple. The cap works on either end of the scale. At the top end, it specifies the highest you will have to pay. For example, your rate could be capped at 8.5%. Or it could have a cap on the low end of 3.5%. The high end protects the borrower and the low end protects the lender. Teaser rate Know when the teaser rate ends. Lenders issue tease rates to entice homeowners. If you think it is too good to be true, you are right. When rates on the market are 4.5% to 6.5%, and a lender offers you 1.5% or 2.5%, then you know something is amiss. Realize that this rate is not for the duration of the term. Read your contract carefully. Be direct and ask the lender to specify in the contract the date that the teaser rate ends. Conversion to a fixed rate To option of converting your ARM into a fixed rate mortgage should be in your loan contract. If you are dealing with Freddie Mac, one of their ARMs allow you to convert without a penalty in year 2 and beyond. The first year is entirely a lock out. With a different ARM they charge a penalty in year one of 3%, year two 2%, and there is no penalty in year four. This is an area of your mortgage contract that you need to spend lots of time and ask questions until you are blue in the face. ARMs are complex mortgages. They can be thought of as designer mortgages. You tell the lender what you want in a mortgage and he would put together the whole package. Index Most lender tie their adjustable rate mortgage to an index. You must learn a little about the common indexes. The three that are prominent in the news are, the Prime Rate, the Constant Maturity Treasury (CMT), and the LIBOR. LIBOR indexed ARMs are most likely what your lender is offering. LIBOR stands for London InterBank Offered Rate. It is the interest rate at which banks offer to lend each money on the wholesale money market in London. Its changes are smaller than the changes in the prime rate. For the week of February 10, 2010 the 1 year libor rate was 0.84%. One month ago the rate was 0.96%. The CMT index is volatile and moves with the market. It is the weekly or monthly average yield of U.S. Treasury Securities. It reacts quickly to changes in the general economy. The Prime Rate is the rate that commercial banks charge their best customers. The prime rate is a lagging indicator. For example if the monthly employment figures are low, the primate rate will have a negative response. However, the rate would not change for another two or three months. Margin An adjustable rate mortgage has two parts to it. One is the index, and the other is the margin. The index is the part that moves up and down depending on conditions in the financial markets. The margin stays the same. You need to keep the margin below 3.0%. If the lender proposes a higher margin, counter by asking for a longer term for your teaser rate. Adjustment date The ARM resets several times over the term of the mortgage. The interest adjustment date is very important because it affects your mortgage payments. Typically the interest adjustment is coupled with a cap. For example, interest adjustment made every 6 months, with a cap of 0.75% per cap, and a total cap of 1.50% for the year. Summary This is a lot of information to digest and then try and mix it all up in to a mortgage contract. Focus on the basics.
In closing, we would like you negotiate every point. Educate yourself, and shop around. |
 | |  | |  | |  | |  | |  | |  | |  | |  | |  | |  |
| How to select the best Fixed Rate Mortgage The fixed rate mortgage is still the favorite choice among homeowners looking to refinance their mortgages. According to Freddie Mac, the third quarter of 2009 saw borrowers who were refinancing, chose a fixed rate mortgage over other types of mortgages. Low Risk The fixed rate mortgage is easy to understand and carries very low risk. You are given a rate and you keep that rate until the contract terminates. Basically, when you give up the house or when you finish paying for it. You are given a payment amount, and it stays the same. It never changes. Because a fixed rate mortgage never changes, it becomes a very inflexible loan. In terms of inflation protection, this is the mortgage to get. As the cost of living rises, your mortgage payment is still the same. If your personality is one that hates change, then the fixed rate mortgage is the best choice. It is also ideal for some one who likes long term planning. Interest only fixed rate Your mortgage payment consists of an amount for the principal and an amount for interest. You may consider the principal your share, and the interest the lender's share. The principal portion reduces the outstanding balance on your mortgage. It represents the equity in your house. The interest portion represents profit to the lender. As long as the lender gets his profit all is well. Most lenders will divide an interest only fixed rate mortgage into two parts. The first part will be 100% interest only for 10 years or 15 years, or what ever the parties to the mortgage decide. The second part will be interest and principal. So, basically the second part is a regular fixed rate mortgage with both principal and interest payments. If your lender deals with Freddie Mac mortgages, he might mention these two products; Initial Interest 10/20 Fixed Rate Mortgage Initial Interest 15/15 Fixed Rate Mortgage The first number is the number of years you pay interest only. The second number is when you pay both interest and principal. With an interest only fixed rate mortgage, the payment stays the same, but nothing goes to the principal. This is great for the lender. He lends you $100,00, you pay him every month. At the end of 5 years you owe him $100,000. At the end of 10 years you still owe him $100,000. As a matter of fact at the end of any year, before the second part kicks in, you owe him $100,000. Now, ask yourself the question, "what's in it for me?" You know the answer. Simple is best Keep it simple when you decide on a fixed rate mortgage. Ask the lender for the option of paying the mortgage bi-weekly, and the ability of paying a lump sum of up to 20% of the original loan amount on the anniversary of the mortgage. You obviously want the best rate, so be prepared to show the lender what other lenders are currently offering for a fixed rate mortgage. Have your research ready. |
Glossary Glossary2 Compare Refinance2 Refinance3 Refinance4 Refinance5 Foreclosure2 Foreclosure3 Short Sale
HomePage Mortgage Perspectives Fraud Credit Week's Feature Latest News Government2 Government3 Government4 Fees Upfront
