Most people preoccupy with nothing but interest rates when they are thinking about when the opportune time is for a home mortgage refinance. The aspect most people fail to remember is that there is more to the mortgage refinancing than just interest rates. In many cases, the terms of the mortgage may be sufficient reason for mortgage refinance. One of the most prevalent term issues that prompt a mortgage refinance is the distinction between two home mortgage refinance options: fixed rate loan and variable rate loan. Essentially, there is just one difference between these two options. The variable rate loan exactly means what it sounds like. Loan payments fluctuate monthly and the borrower effectively pays whatever amount is dictated by the prevailing prime interest rate. In point of fact, the prime interest rate in the market is a consensus among a certain group of lenders of what interest rates should be—pretty out of anyone else’s control per se. Hence, for the borrower there are quite a number of negative things that are associated with the variable rate home mortgage refinance option.
Firstly, and importantly the most inconvenient, is that one never knows exactly how much mortgage payment will be for a particular month. Mortgage payments are unpredictable. They may remain fairly steady for a while, albeit a certain level of fluctuation always exists. Depending on the terms of a particular loan, one may unfortunately be paying late fees or incredibly high interest as a penalty to any portion of the payment one fails to make, even if it was merely an oversight. The reason is that one really cannot tell how much the payment should have been. On the other hand, the stability of fixed rate home mortgage refinance option is something that is recommended to alleviate the problem of unpredictability of variable rate loans.
The apparent hype with variable rate mortgages is brought about by the wildly fluctuating interest rates a few years ago. Large fluctuation was attractive because the interest rate has a high chance of going really low. Thus by locking into a fixed rate, one cannot benefit from a situation wherein interest rates plummet. In other words, variable rate home mortgage refinance is suitable for risk takers who are willing to absorb high interest rates for the chance that they could gain from really low ones. The fixed rate option is risk averse.
Still there are many other different types of home mortgage refinance options out there besides the two most common ones that have been discussed above. Other options go under the names of interest only mortgages, discounted rate mortgages, balloon payment mortgages, and negative amortization mortgages. For somebody who is considering mortgage refinance, it is important to do research before you choose which particular option you would take with respect to his financial situation, lender’s rates, lending policies, the prevailing housing real estate market, and lots more. Regrets from choosing the wrong option are mitigated if one pays a little time and effort with research.
Home mortgage [http://floridamortgagebroker.us] refinancing is indeed an effective tool to escape from debts that normally plague a lot of homeowners. There are several options available in the market but it is very important for one understand the risks involved with each option. However, as a rule of thumb fixed rate home mortgage refinance option is the most appealing because of its risk-averse, hence more secure, nature.
