Stabilize Your Mortgage Payments by Refinancing

by Karen Lawson CMR Columnist

Mortgage interest rates are rising, and so are your ARM loan payments. But you can beat ARM anxiety by refinancing your mortgage loan to a fixed rate mortgage, and take advantage of lower rates for an initial period of fixed-rate payments with a hybrid loan.

Refinancing to a Fixed Rate Mortgage Offers Peace of Mind

The traditional 30-year fixed-rate mortgage, or FRM, has been the standard home loan for decades. It is fully amortized, and your principal and interest payments remain the same throughout the loan term.

Adjustable-rate loans, or ARMs, allow for adjustment of your interest rate according to certain indexes. When home mortgage rates rise, your loan payments will rise, too. Although FRM loans generally have higher rates, your payments are predictable, and your loan balance is being paid down each month.

Hybrid Mortgage Offers a Solution to High FRM Rates

A hybrid loan may be feasible if you don't need to commit to a fixed rate over the long haul. A hybrid loan has a fixed rate for an initial term three to ten years. When the FRM term expires, the hybrid loan converts to an ARM loan, according to the terms of your mortgage documents. The initial fixed rate is usually lower than the market rate for traditional fixed-rate loans. If you plan to sell your home or refinance again in a few years, a hybrid loan can give you short-term interest rate relief. The downside is that your interest rate will eventually become adjustable.

Before committing to refinancing with a hybrid loan, you'll want to check for prepayment penalties. Prepayment penalties are extra charges incurred if the loan is paid off or refinanced before a certain period of time passes. As with any major financial transaction, it's a good idea to consult your financial advisor before refinancing.

About the Author
Karen Lawson is a freelance writer with more than fifteen years of experience in mortgage banking. She earned an MA degree in English from the University of Nevada, Reno.

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