If a consumer currently has an Interest Only Mortgage that is getting ready to start going up, they should Refinance to a Fixed-Rate mortgage. In doing so, it will ensure the consumer’s interest rate will stay the same and will not fluctuate.
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Interest Only Mortgage Refinance: Basic Info & Overview
Refinancing simply means balancing the cost-savings of a lower monthly payment versus the costs of completing the refinance. Should a consumer consider a refinance? The answer is simple because “it all depends” on each consumer’s particular situation. As a general rule, consumers could use this type of data to make a decision: If the difference in the interest rates will be two percentage points or more, it is likely worth it to refinance. Despite consideration of the fees a consumer may have to pay, two percentage points will save them money if they plan on staying in their home for a substantial period of time.
A refinance is NOT an extension of an existing mortgage loan – it’s a new mortgage loan with a new interest rate as well as payment plan. Some of the popular reasons consumers may decide to refinance is to lower their current interest rate, change their loan type, or even to pull some cash out of their house. Another great reason is that the consumer might desire to refinance to go from an adjustable rate mortgage to a fixed-rate.
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Advantages to Refinances
The premium advantage of this type mortgage is if a consumer wishes to change their loan type. If a consumer has an Interest Only loan or Adjustable-Rate Mortgage that is getting ready to start going up, the consumer should consider a refinance to a Fixed-Rate mortgage loan. This type of loan assures the consumer their interest rate will stay the same.
Interest Only Basic Info & Overview
These mortgages are an option that provides one to spend the beginning portion of the payment term (the length is stipulated in the contract), paying the interest on the loan. Next, one could begin to pay off principal, pay the total balance, or refinance. Perfect product if one plans to refinance after a short period. Product is not useful for building equity NOR is it a good choice for those with fixed incomes who may not be able to make higher payments after the interest only period. This product is further defined as “interest–only payment option” which is offered on fixed-rate or adjustable-rate mortgages as well as on Option ARMs. This option to allow consumers to pay “interest only” provides the consumer would only pay the interest portion of their monthly payment for a fixed period. After that fixed period, the loan becomes fully amortized, thus resulting in highly increased monthly payments. Note the new payment will be higher than it would have been if it had been fully amortizing from the start. The longer the period of “interest only”, the higher the new payment will be when that period ends. Interest Only payment plans are for consumers who anticipate earning substantially more in a few years and wish to maximize their purchasing power now or who will invest the difference between an interest only and an amortizing mortgage payments.
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