Home Mortgage Refinancing Options

by Gabby Hyman
HomeOwnerNet Columnist

Lending rates across the country are falling, sparking interest in home refinancing and creating mortgage options that may have been closed to homeowners in the past few years. Both adjustable and fixed mortgage interest rates fell in April 2007, and with the easing of annual averages, you may want to take advantage of refinancing packages that can increase your cash flow or lock you into a mortgage with long-term stability.The drop in rates has sparked interest in borrowing as the economy adjusts to dropping home sales and what appears to be a leveling of more than a decade in ballooning property values. The fixed-rate interest financing option for home mortgages saw more favorable averages in April, according to CNNMoney.com. The 30-year fixed-rate mortgage lending average dropped to 6.16 percent, down from the previous month and lower than the 6.58 percent rates of April 2006.

What are Your Home Mortgage Refinancing Options?

An adjustable-rate mortgage (ARM) has an initial set interest rate and then changes to a variable rate based on an index tied to six common economic forecast indicators. The term may change as well as the rate, and there can be caps on the increases allowed to the lender.

A fixed-rate mortgage is also attractive to people seeking refinancing. While the fixed rate may be higher than the initial interest rate of an ARM, it remains constant through the term of the mortgage, enabling borrowers to more accurately predict their ability to make payments over time.

Lenders also offer hybrid ARM loans which can combine fixed as well as variable interest rates over the term of the refinancing mortgage. For example, you can accept a locked-in initial interest rate for a 3, 5, or 7-year initial term before the rate adjusts.

A third loan type among home mortgage refinancing options is the partial amortization or so-called balloon loan. If you plan properly, this can be a positive choice, but it can result in a defaulted mortgage for those who cannot accurately save money for the outstanding principal balance that comes due toward the end of the term.

When looking at an ARM, it's important to realize that it may be affected by unpredictable forces. For instance, when the Federal Reserve increases its interest rates, your mortgage interest rate can be impacted.

Above all else, if you're looking over your mortgage refinancing options, think about how long you expect to stay in your home and the amount of equity you've established there.

Source

CNNMoney.com: Mortgage Rates Ease on Weak Home Sales, Confidence

About the Author
Gabby Hyman has created online strategies and written content for Fortune 500 companies including eToys, GoTo.com, Siebel Systems, Microsoft Encarta, Avaya, and Nissan UK.

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