This is a common question asked these days due to all of the people that are starting to feel the squeeze from their adjustable rate mortgages continuing to rise each year. One percentage point on a $300,000 mortgage can increase your payment hundreds of dollars, and some people don’t have the extra money. This is why we’re starting to see so many foreclosures. Some of the situations are even worse. Some people bought mortgages with a 1% interest only payment for one year, and now their payments have increased by thousands! The answer to whether or not you should refinance your mortgage is not the same for all people.
When Should You Think About Refinancing to a Fixed Rate:
If the fixed portion of your ARM is expiring within a year, then you s.hould start shopping around to refinance to a fixed rate. If your ARM percentage rate is somewhere between 5 and 6% you’re not going to save any money on your payment, but you’ll have the security of locking in a fixed rate that will not change on you. If you have an ARM that has already started to adjust, then I would definitely shop around to refinance your mortgage. Remember not to get scammed by a mortgage broker that will add on a ton of fees like discount points and origination fees. But, the mortgage rates are low enough right now to make it worth paying a little bit to lock in a fixed rate. If you have a balloon package as part of your current mortgage, get that thing refinanced to a conventional, fixed-rate loan. If you’re credit isn’t so good, ask the mortgage company to do manual underwriting. Ask them to evaluate your payment history if it’s been on time and try to come up with past rent payments before you bought the house.
When Should You NOT Think About Refinancing to a Fixed Rate:
If you have a 7/1 ARM or a 5/1 ARM, and you bought less than 2 or 3 years ago, I would wait it out to see what happens to the interest rates, before going ahead with the refinance. If the 5 year or 7 year fixed rate of your ARM is between 4.5% to 6%, then you won’t get your payment any lower, because the interest rates now are in the mid-6’s. Plus, you still have some time to enjoy a fixed rate. Don’t just refinance for the security of a fixed rate until you get within a year of it starting to adjust. Now, I might say this now, and then 2 years from now, the fixed rates are at 7 or 8%, but it’s ultimately your choice. My point is that you don’t need to panic if you’re in this situation. Not only do yoalsou have plenty of time to see what the interest rates do, but you also have plenty of time to sell your house as your worst case scenario.
Let’s think about those that are losing their houses this holiday season. According to the numbers, there will be hundreds of thousands of families losing their houses. It may be their own fault for buying a house they can’t afford, but it may also be because of unforeseen circumstances, so forget about why they are losing their house and reach out to them this season. Send them an anynonymous gift or presents to the kids. If you are out there, and you are feeling the housing and mortgage squeeze, know that there is hope, and it’s not the end of the world. Seek out a financial counselor or advisor who can give you more professioanl advice about how to handle your mortgage situation.