Get Rid of Your ARM—And Lower Your Mortgage Payment
An adjustable rate mortgage (known as an ARM) can be a great thing in periods when interest rates are falling. You can find yourself making lower and lower payments. However, in most cases, especially if
you got your ARM mortgage in the last five years, you are unlikely to see the interest rates decrease. Rather, they are increasing and likely to continue to do so through 2006. So, in order to ensure a lower mortgage payment, it might be a good idea to refinance your mortgage to a fixed rate.
The problems with an ARM
There are several disadvantages to having an ARM. Often, these outweigh the lower interest rate you received initially (it might have been part of a special rate) and the possibility of sinking interest rates. Additionally, with an ARM, you never know exactly how much you will pay each time your mortgage payment is due. Your next payment could be higher than the current payment, as the required amount increases to cover the increased cost of the interest. You can lower your future payments, and protect against future rate increases, by taking advantage of a fixed rate mortgage.
Why a fixed rate can lower your mortgage payments overall
Interest rates follow cycles of rising and falling. However, if you got your ARM at a rather low rate, the chances of you seeing it fall again are rather rare. With a fixed rate mortgage, you can lock in an interest rate and prevent your rate from going up. This is very helpful, as you are likely to save money in interest payment in the long run by sticking with a reasonable fixed rate mortgage of between 5.75% and 7.25% if your credit is good to fair. As interest rates rise, and as they are unlikely to drop to these levels again for years, you can lower your overall mortgage payments, how much you spend in interest, by refinancing to a fixed rate mortgage before the rates go up again.
Other fixed-rate advantages
Another advantage to having a fixed-rate mortgage is the constancy of the payments. You always know exactly how much you will pay each month. Plus, if the rates drop significantly lower than your fixed-rate, you can refinance to a lower rate if you have good credit. Switching from an ARM to a fixed rate mortgage can be a great way to lower your overall mortgage payment and save a great deal of money in the long run.
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