Interest rates have been at or near historic lows for several years now, and homeowners have been reaping the benefits of the adjustable rate mortgage (ARM) because of it.
Sound like you? Ah, yes.
You’ve been enjoying that low initial interest rate; however, things may be getting a little more complicated—and costly—soon. With the potential for interest rate hikes, your monthly mortgage payment could increase, particularly if your ARM’s initial term is ending soon.
But don’t fret. Refinancing into a fixed rate mortgage could be a smart and seamless option for you. Need some reassurance? Consider these benefits:
1. You’re protected if interest rates rise
This is the beauty of a fixed rate mortgage, and probably the biggest downside of an adjustable rate. Locking in a fixed interest rate gives you stability over the life of your loan and essentially safeguards you in the event of a rate hike.
2. Budgeting should get easier
Knowing exactly how much is coming out of your bank account each month for your mortgage payment means you can budget much more effectively. With a fixed interest rate, you don’t have to worry about limiting spending in other areas if your payment were to be affected by a rise in interest rates.
3. Choose from a range of loan terms
Refinancing to a fixed rate mortgage allows you to have flexibility when it comes to loan terms, which can greatly benefit you. Though the 30-year fixed is one of the most popular loan options available, that’s just the tip of the iceberg. With loan terms ranging from 10, 15, 20, 25, and 30 years, you can basically customize your loan’s years based on your situation.
What do we mean by your situation?
Well, if you have the extra funds to make a larger monthly mortgage payment on something like a 10- or 15-year fixed loan, you may end up saving thousands on interest over the life of the loan. And if you don’t have excess cash on hand? No worries. A 25- or 30-year fixed would give you a lower payment throughout, but with more interest tied to it.
4. Do a cash-out refi
Have an ARM and need some extra cash for a major expense? That’s right: you can benefit from a fixed rate mortgage in this scenario, too. Here, you’d refi into a fixed rate and use your home equity to get cash for things like home renovations, college tuition, and consolidating higher-interest debt.
What’s more, you may be able to shorten your loan or get a lower rate when you do a cash-out refinance. But again, have we mentioned rates could be rising soon? Your time could be running out.
At this point, it should be pretty clear: Refinancing into a fixed rate mortgage can be a smart option when you have an ARM—especially if the predictions on rate hikes come true.
Think this might be the right path for you? Learn a little more about our refinancing process here.