When it comes to being a homeowner, there is no such thing as, “one size fits all,” and refinancing is no exception. In November 2012, refinancings were up 71.2% over the same period in 2011, according to the Mortgage Bankers Association. At a time when historically low rates are being offered, many homeowners are taking advantage of the opportunity to refinance as a way to reduce monthly payments or shorten mortgage terms.
Two of the most common types of residential loans are fixed rate mortgages and adjustable rate mortgages. Depending on your situation and needs, refinancing can allow you to take advantage of each option’s unique offerings.
Most banks, including NVE, offer a fixed rate mortgage. With this option, the interest rate remains the same throughout the entire loan term. The biggest advantage is that you know exactly what the interest and principal payments will be for the loan term. This helps to facilitate your budget planning, and provides a sense of long term stability.
Adjustable rate mortgage loans, or ARMs, are mortgages with an interest rate that may change at predetermined intervals over the life of the loan. The borrower is protected by a maximum interest rate (called a ceiling). ARMs usually start with better rates than fixed rate mortgages in order to compensate the borrower for the additional risk that future interest rate fluctuations may create.
Here are a few suggestions to help you determine which loan is right for you, and when:
1. Changing your rate
Refinancing from a fixed rate to an ARM is worth investigating if you’re planning to move soon. You can use the savings from lower payments for your new home. If the opportunity arises and you are financially able, consider switching from one ARM that’s been adjusting up, to a less expensive ARM, or to a fixed mortgage. Even if the fixed rate is more expensive today, it will lock in your payments for the remaining loan term and ward off further increases.
2. Changing the term
You may also consider refinancing to change the term – or life – of the loan. While a shorter term loan’s monthly payments may be higher, you’ll build equity faster and save money over the life of the loan.
3. Cashing in your equity
Appreciating home values could encourage you to refinance for a larger mortgage to pull out equity. This could be useful if you’re looking to update your home, consolidate bills, make tuition payments, or any number of financial needs.
If you’d like to start the research process, NVE Bank offers online tools that can be helpful. For example, some of our online calculators can assist in determining various payments, savings and rates.
Before making any decision, we highly recommend meeting with a mortgage specialist, such as those at NVE. A mortgage professional can help you determine if refinancing makes sense, and if so, which option is best.
A variety of mortgage options are available from NVE, including a 7-year fixed mortgage with low rates. This addresses the first two suggestions above, and may be attractive if you have 10-15 years left in your mortgage term.
Learn more by visiting the NVE website. You can also call one of our Mortgage Specialists at 1-866-NVE-BANK or schedule an appointment with our experienced branch staff at one of our neighborhood branches.