Homebuying can be a stressful or uncertain business at times. In today's market, there's much debate about what type of mortgage to get - an adjustable-rate or a fixed mortgage - and how do you know when it's time to consider refinancing an adjustable-rate mortgage?
Market Street Mortgage, one of the nation's leading retail originators of residential mortgage loans, offers these tips:
If you are buying a home now, consider whether you'll be able to handle the possibility of rate increases before choosing an adjustable-rate mortgage. Don't let the decision be simply "What is the cheaper payment to get me into the house" because it may not be the best choice for the future. Depending on your situation, you could also consider a five-year ARM if you know you'll move before it starts adjusting, or if your projected income will also increase. On the other hand, for stability, select a fixed-rate mortgage to provide a steady principal and interest part of your mortgage payment.
Take the time to compare the two options side by side. Ask yourself how much you are really saving each month by choosing the adjustable-rate mortgage over the fixed. Is it worth the risk of how the rate will adjust in the near future? Or is it worth the cost of refinancing later?
And what if you already have an adjustable-rate mortgage?
Review your documents and determine what the initial fixed period is. For example, a 5/1 ARM is fixed for the first five years and then adjusts every year after that. So, if you plan on remaining in your home once the loan starts to adjust, you should determine whether you'll be able to afford the new monthly payment that will go into effect. Get in touch with your mortgage consultant before you reach the adjustment time, so you can start tracking rates and reviewing your options.
Talk with a mortgage consultant so they can provide you with an analysis and the right tools to assist in making your decision.
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