If you are thinking about what you can do to lower your monthly mortgage payment, refinancing may be just what you're looking for. However, refinancing isn't always the best option and sometimes it is better just to keep paying your existing loan. That's where the experienced professionals at Gold Star Mortgage come in. They can help you decide if refinancing is right for you and what steps you can take to make it happen.
Refinancing your home means that you may be able to replace your current loan with a new mortgage that is more affordable. With lower mortgage payments, you could save quite a bit of money, shorten the time it will take you to pay off your loan, or increase your cash flow.
You could increase your cash flow
• A lower mortgage interest rate could decrease your monthly payment
• Lower payments mean that you have more money for extra funds, like paying off debts or saving money for future plans
You could shorten your term
• Lowering your interest rates gives you the opportunity to potentially switch to a shorter-term mortgage
• You will have the option to either pay the principal balance down to build equity faster, or pay less interest over time with a shorter term loan
You could access the equity in your home
• You have the opportunity to use your home's equity for personal purchases with a cash-out refinance loan
• This would replace your current mortgage so you can pay off your current mortgage balance or use the equity for additional funds
Thirty-Year Fixed Rate Mortgage
The traditional 30-year fixed-rate mortgage has a constant interest rate and monthly payments that never change. This may be a good choice if you plan to stay in your home for seven years or longer. If you plan to move within seven years, then adjustable-rate loans are usually cheaper. As a rule of thumb, it may be harder to qualify for fixed-rate loans than for adjustable rate loans. When interest rates are low, fixed-rate loans are generally not that much more expensive than adjustable-rate mortgages and may be a better deal in the long run, because you can lock in the rate for the life of your loan.
Fifteen-Year Fixed Rate Mortgage
This loan is fully amortized over a 15-year period and features constant monthly payments. It offers all the advantages of the 30-year loan, plus a lower interest rate—and you'll own your home twice as fast. The disadvantage is that, with a 15-year loan, you commit to a higher monthly payment. Many borrowers opt for a 30-year fixed-rate loan and voluntarily make larger payments that will pay off their loan in 15 years. This approach is often safer than committing to a higher monthly payment, since the difference in interest rates isn't that great.
Hybrid ARM (3/1 ARM, 5/1 ARM, 7/1 ARM)
These increasingly popular ARMS—also called 3/1, 5/1 or 7/1—can offer the best of both worlds: lower interest rates (like ARMs) and a fixed payment for a longer period of time than most adjustable rate loans. For example, a "5/1 loan" has a fixed monthly payment and interest for the first five years and then turns into a traditional adjustable-rate loan, based on then-current rates for the remaining 25 years. It's a good choice for people who expect to move (or refinance) before or shortly after the adjustment occurs.
Adjustable Rate Mortgages (ARM)
When it comes to ARMs there's a basic rule to remember...the longer you ask the lender to charge you a specific rate, the more expensive the loan.
2/1 Buy Down Mortgage
The 2/1 Buy-Down Mortgage allows the borrower to qualify at below market rates so they can borrow more. The initial starting interest rate increases by 1% at the end of the first year and adjusts again by another 1% at the end of the second year. It then remains at a fixed interest rate for the remainder of the loan term. Borrowers often refinance at the end of the second year to obtain the best long-term rates. However, keeping the loan in place even for three full years or more will keep their average interest rate in line with the original market conditions.
This loan has a rate that is recalculated once a year.
With this loan, the interest rate is recalculated every month. Compared to other options, the rate is usually lower on this ARM because the lender is only committing to a rate for a month at a time, so his vulnerability is significantly reduced.