When refinancing your current mortgage there are two different types of home loans that you can choose from, those are the fixed rate and the adjustable rate mortgage.
A fixed rate home loan gives a a stable rate and principal and interest payment that will stay exactly the same for the life of your loan. This is a great loan for people who intend to stay in their homes and not refinance for a long period of time.
On the other hand the adjustable rate mortgage has an initial fixed interest rate that will change at predetermined time periods, in most cases once every year. Your adjusted rate will be determined by a adding your margin and index together.
An ARM loan is usually only recommended when you know you will be refinancing or selling your home before the rate resets. If not you will be forced to pay higher payments or incur the cost of a refinance.
If you are deciding between these two types of loans one thing you should be aware of is that often times there can be little variance in the interest rates two and other times the difference can be quite severe. This is usually dictated by how short term interest rates are performing at the time.
As a general rule of thumb if the adjustable loan is at last .75% lower then the fixed and you can get a 5 year fixed term you should opt for the ARM. But if the interest rate difference is lower then that you will probably come out ahead by taking the fixed rate.
So before you just assume that the adjustable loan will have a lower rate call around and compare quotes for both fixed and variable rate home loans because you may actually be surprised at what you discover.
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