Many home buyers originally start with a 30-year fixed mortgage or with an adjustable rate mortgage, also known as an ARM. Both of these options can offer low monthly payments over the terms of the loan, with the ARM adjusting up or down at specific points along the way.
For most homeowners with these types of mortgages, making a choice to refinance to 15-year fixed mortgage rates make sense at some point in time. This may be when an ARM is going to adjust upwards and no longer be a competitively priced mortgage. It may also be if the homeowner has a change in finances and has the ability to make larger monthly payments to pay off the loan in a much shorter period of time.
The Rate Change
When homeowners refinance to 15-year fixed mortgage rates they should expect to have a better and lower interest rate on the refi loan. There are two reasons for this to occur. One is the shorter time that the money is borrowed, allowing the lender to offer a better rate.
The second reason for a lower possibility when you refinance to 15-year fixed mortgage rates is the increase in equity in the home. This won’t be evident if you have only had the home for a short period of time, but it can be a big advantage for those with several years of loan payments behind them.
Higher Monthly Payments
While it is true that the refinancing will result in higher monthly payments with a 15-year fixed rate loan, the payments will not vary over the term as would happen with an ARM.
Additionally, home equity will build up faster as a greater percentage of the higher payment goes directly to the principal. Additionally, most of these loans, particularly for conforming loans, will offer lower fees, which is another benefit to this option.
For more information on how to refinance to 15-year fixed mortgage rates can help your financial situation, contact the experts at Guaranteed Rate.
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