Refinance To An Option ARM Loan
Refinance To An Option ARM Loan - Many homeowners have found strong benefits to refinancing to a pay option ARM loan. These loans do have a downside so make sure that the mortgage agent that you work with fully explains how these loans work and whether such a loan would be right for your individual situation. Despite the risks involved, thousands upon thousands of homeowners have refinanced into these loans to take advantage of the flexibility and cash flow benefits that they offer.
Please make sure you ask your mortgage professional a lot of questions about the Pay Option ARM if you are not familiar with the loan, how it works, or the risks and benefits of the loan. If you are still unclear about the Pay Option ARM loans after asking your Mortgage Professional and you are not satisfied with the information you have received, consult an outside source. These loans can provide great benefits to many consumers, but also they are not the right type of loan for everyone.
Many of the risks associated with Option ARM loans are to a large extent solved by using the newer Hybrid or Fixed Rate Pay Option minimum payment loans, which offer rates range from 1% to 4% for their minimum payments and have either their rate or payment fixed for 3, 5, 7, 10 or even 30 years.
It's very important to understand that the minimum payment does not cover the interest on your option ARM. As a result, your balance owed increases each time you make a minimum payment. Also, your actual interest rate is adjusted each month and may go up or down depending upon the index it is based upon. Insist on a written explanation/disclosure from your mortgage professional before making a final decision.
The biggest risk with the option arm is the potential for negative amortization. Basically, this means that your loan balance can go up over time, rather than down. The reason this is possible is that there is a 'minimum payment' option, where you make a payment based on an interest rate that is lower than your real interest rate. When you do this, the difference in your interest payments between the two different interest rates is added to your loan balance.
One of the risks of a Pay Option ARM is that some of the payments are based on a 1-month adjustable rate. While the adjustments are relatively small this is still a feature to be aware of in any type of market.
The pay option ARM programs require a great deal of financial responsibility for the borrowers. The money saved every month by making the minimum payment needs to be used for investment or debt pay off purposes. The money is not meant to go to items such as new cars, boats or other recreational items!
Refinance to Lower Your Monthly Expenses - When most people think of refinancing they are thinking in terms of lowering their rate of interest or their monthly payments. Even as interest rates are rising, refinancing often makes sense for many American households. Even if you have to slightly raise the rate of interest that you are paying, if you can refinance to pay off other high interest debt you will likely see a huge improvement in your monthly cash flow. It is often more beneficial to lower your overall monthly expenses, not just your mortgage payment.
Remember that the interest you pay on your mortgage is tax deductible, where as the interest on your credit cards are not. That is why a slightly higher mortgage interest rate, is not as bad as most consumers may think.
You can lower your monthly expenses by refinancing into an interest only loan. This will help you to save a good amount of money from your monthly mortgage payment alone. If you were to consolidate debt in your refinance and switch to an interest only loan this would save you a lot of money per month and truly maximize your monthly cash flow.
When analyzing the benefits of a refinance you should look at both the short term and long term financial benefits. You should consider the length of time you plan on staying in your current property, how much you will save over time, and how much you will save monthly. A good way to figure how beneficial a refinance can be if you are paying off debt is to figure how long and at what cost it will take to pay off you current debts at the payment levels you are currently making.
Revolving debt interest rates are generally much higher than mortgage rates. In today's market many credit card companies are raising the minimum payments considerably. This causes hardship in many households. Often times refinancing and paying this type of debt off through the loan can be very beneficial.
Make sure you are certain that the end result will benefit you financially. Instead of refinancing your whole mortgage you may want to take out a second mortgage or HELOC to reduce debt payment amounts.
Be careful not to squander your home equity. Sadly, in many cases a family will take cash out of their home equity to pay off high interest rate credit card debt but only a few months later have the credit cards charged up again. In this instance you have traded unsecured credit card debt into a secured debt the lender can and will repossess: your home!
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Information listed above is to be used for educational purposes only and is not guaranteed