Home Loans: Getting Rid of Your Adjustable Rate Mortgage

Many people choose an adjustable rate mortgage (ARM) when they buy a home. When rates are low, sometimes they can get an even lower rate on home loans agreeing to an ARM. And while this may seem like a great deal to begin with, home buyers quickly learn that there are some disadvantages to the ARM, including:

• A variable interest rate means that it can go up, meaning you end up spending more money.
• An ARM means that your payment changes when the interest rate does. You could end up owing more than you originally wanted to pay some months. This makes budgeting difficult.

If you have an ARM, you might consider switching to a 30 year fixed rate mortgage loan. This will help because you can have a set rate, so you will be able plan on your payments remaining the same for the life of the loan. And, if rates do drop significantly, you can refinance to that lower rate. If rates go up, you have a low fixed rate that you can feel good about.

Refinancing your home properly

If you want to refinance your mortgage from an ARM to a fixed rate, then you need to make sure that you are doing it the right way. Any time you switch from a varialble rate to a fixed rate you are heading in the right direction. But there are two things you need to keep in mind:

1. Don't "cash out" with your equity. Many home owners fall victim to the "cash out" loan when they refinance a mortgage. Basically, this is when you refinance for more than you owe. The extra cash goes to you. Unless you are making home improvements, this may not be the best method. Using the money to take a trip can mean that the interest from that really adds up. And even paying off high interest loans may not always give you the savings, since it may mean stretching out your payments for as long as 30 years. Carefully consider the pros and cons of a "cash out" refinance.
2. You don't have to get a 30 year loan. If you are refinancing your mortgage to a lower rate, remember that you don't have to get a 30 year loan. You can refinance for 20 years or 15 years. If you have been in your house for a few years, this is a great idea, since it will help you save even more money in the long run.