Securing a low monthly payment is the reason that many home buyers decide to obtain an adjustable-rate mortgage loan. Although, in many cases, it makes sense for a borrower to consider an adjustable-rate mortgage if he plans to reside within a home for less than five years. Perennial Funding offers professional support for borrowers who are seeking to refinance an FHA, VA or a conventional mortgage loan.
About Adjustable-Rate Mortgages
Mortgage lenders often provide fixed-rate loans for a 15-year term or for a 30-year term. However, for home buyers who desire short-term financing, many lenders offer adjustable-rate mortgage loans.
Adjustable-rate mortgages are widely used among first time homebuyers. Millennial home buyers and borrowers who recently entered the job market might retain an ARM loan for a few years or until their earnings begin to increase.
Similar to the excitement of receiving teaser credit card rates, the honeymoon is usually over when the promotional rate starts to climb. However, when properly used, an ARM is a mortgage product that provides a financing alternative to long-term fixed-rate loans.
Scheduled Adjustable-Rate Mortgage Increase
Prior to an interest rate adjustment, the mortgage company or the servicer of the loan is required to inform the borrower of the change. Federal law mandates that a borrower receives a written notice of an interest rate change and the new payment amount between 60 and 120 days of the new payment due date.
A borrower can inquire about refinancing an adjustable-rate mortgage to obtain a long-term fixed-rate home loan, ahead of a scheduled rate increase. Whether or not a decision is made to refinance, it is very wise to know the benefits of the available options.
Extended Time Frame in Owner-Occupied Property
If a home buyer initially intended to reside in a new home for only five years, but she wants to live in the property indefinitely, an upcoming, and future rate adjustments could become very expensive.
Perhaps a promotion at a local firm or an ongoing project requires her to live within the subject property for an extended time frame.
Insufficient Equity to Sell a Home
Maybe, a borrower does not have enough equity to place his home on the market for sale, and he must weigh the implications of an interest rate adjustment. With an inability to sell a home and a looming interest-rate adjustment, refinancing might be a prudent decision.
Although, a borrower will need to compare the benefits of allowing the interest rate to adjust against the cost of refinancing, along with the new payment amount and the number of months that he plans to occupy the property.
When refinancing, it is always a good idea to determine the break-even costs.
For instance, if the scheduled adjustable-rate increase results in a monthly payment that is $100 higher, a borrower who plans to sell the home in less than one year might be better off with the larger payment for several months.
While a borrower who decides to live in a home for an additional 36 months or more and faces potential adjustments in the upcoming years might save a fortune by electing to refinance with a fixed-rate mortgage loan.
The current interest rate environment is predicted to trend upwards for the foreseeable future. Now is time for homeowners with an adjustable-rate mortgage loan to speak to a loan officer at Perennial Funding.