Refinancing an Adjustable Rate Mortgage

If you have an adjustable rate mortgage, you are likely in the market for a new fixed rate mortgage. Adjustable rate mortgages are fine during the locked period, but after that they are unpredictable and fluctuate. Sometimes the rate increase will be too much to afford. But you can refinance into a fixed rate mortgage for more stability and control.

Call Your Lender

It is possible your lender will allow you a new mortgage. Especially with the loan modification program, some borrowers will qualify to have their adjustable rate mortgage transferred to a fixed loan. Usually you would need a hardship or your loan would have to be an unusually high interest rate. Even if you can't do a loan modification, your lender may refinance your mortgage directly, which would lower your closing costs. Be sure to shop around though for the best rate, your lender may not offer that rate to you.

Do Your Research

You should research all of the programs out there before talking with the lender. The lender is not always going to give you the best deal, so you need to know what your options are. If you have lots of equity in your home, and have good credit, then you will be able to get a conventional thirty year fixed program very easily. If you have very little equity or bad credit, you may want to look at an FHA loan. FHA is lenient on requirements. They allow low credit scores, high debt ratios and unconventional credit history.

Shop Around

Check multiple brokers and banks for the best rate. When looking at rates, also look at closing costs incurred and points paid. A point is an upfront interest payment, and is equal to 1 percent of the loan amount. A point will lower your interest rate and your monthly payment. When deciding whether or not to pay any points, it is important to look at how long you will stay in the house. If you are planning to move in a year or two, then you shouldn't pay any points and instead take the higher rate.

Get Everything in Order

If you have chosen a lender, the you should have everything in order. Check your credit before the lender does. If you have imperfections that need to be fixed, then you should take care of that ahead of time so you get the best rate. Decide whether you will pay closing costs at the table or have them rolled into the loan. Also, you will need to get an appraisal to see what the current value of your home is. Some lenders will only allow 95 loan to value. If you have less than 80 percent equity, you will need to pay for private mortgage insurance.

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