Refinance Options: Narrowing Down the Options

By Debbie Wilson
Loan Page Columnist

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Deciding to refinance your mortgage loan can seem like an intimidating process, especially when faced with so many different mortgage options. But don't fret. There is a way to find out which refinancing option for your mortgage loan is best for you. All you need is a little quality information and some helpful hints.

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Fixed-Rate Mortgage Loans

If you're refinancing in order to bring more stability to your payments, take a look at fixed-rate loans for refinancing. Fixed rate mortgage loans typically come in 30- or 15-year increments. The advantage of both of these mortgage loans is that your monthly payment (spread out in either 360 or 180 equal payments) never changes throughout the course of your loan. So, if you like stability and plan to live in your property more than 10 years, this might be the mortgage for you. The fixed-rate mortgage loan is the most widely accepted program used to finance a residential purchase and is available for conventional, jumbo, FHA, and VA loans.

Adjustable Mortgage Loans

If you're looking for a lower rate and are comfortable with a little risk, consider refinancing with an adjustable-rate mortgage. An adjustable-rate mortgage (ARM) is a mortgage loan that utilizes a low introductory rate and then adjusts the interest rate periodically based on a pre-selected index (usually the one-year Treasury Bill).

An ARM can come in 30- or 15-year increments as well; however, because the interest rate is adjusted each year, you should be prepared to handle increases in your monthly payment, should the index rate increase. These types of mortgage loans usually work best when you have the opportunity to take advantage of a low interest rate or cannot qualify for a higher-rate, fixed-rate loan.

Balloon Mortgage Loans

Are you looking for a low rate and only planning on staying in your home a short time? Take a look at refinancing with a balloon loan. A balloon mortgage is a loan that typically has a short term (usually five to seven years), but uses a 30-year term to compute the monthly payment, so you have low payments during this period, but at the end must pay off the balance of the loan in a balloon payment.

The advantage of a balloon mortgage is that you get the stable payment of a fixed-rate loan, but have the flexibility of a short-term loan. The obvious disadvantage is that you should be prepared to move within five to seven years or have the means to cover the remainder of the loan when it comes due at that time. These types of loans may be harder to qualify for, though many lenders today also offer 30-year conversion loan options.

So if you are ready to reduce the interest you currently pay on your home, now might just be the perfect time to refinance. With the right type of mortgage loan, you could be saving money in interest payments and enjoying the right loan that fits comfortably with your lifestyle, finances, and future goals.

About the Author
Debbie Wilson owns and operates a lakeside resort. Her previous experience includes profitability consulting for a national healthcare company. Debbie holds a B.A. in Business Management with a minor in Physical Education.

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