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How Fixed Rate Mortgage Refinancing Can Make A Huge Difference

Author : Shrishty Chaand

If you are looking to refinance your home loan there are two main mortgage refinancing programs.The two are specified as adjustable rate mortgage (ARM) and the fixed rate mortgage loan.As choosing a fixed rate mortgage refinancing program or adjustable rate mortgage refinancing program is purely based on the requirement of the homeowner, he alone can take the right decision.

In a fixed rate mortgage the rate of interest is the same for the entire period of the home loan.If you choose a 30 year mortgage loan the interest rate will be the same throughout the 30 year period or until the home is sold or the mortgage is again refinanced.There is a fixed term of usually 3-5 years in the adjustable rate mortgage (ARM).When the fixed interest rate period expires the interest can then adjust month-to-month based on current interest rates.This can have a lot of change in the monthly mortgage payments .When there is a vast change in the interest rates then it becomes burdensome to repay the loan.For this reason ARM's are best suited for homeowners that plan on moving or refinancing their mortgage at the end of the fixed interest term.

There is a lot more steadiness associated with the fixed rate mortgage loans.To get the best home loan rate the borrower has to have a good credit history at the time of taking up the loan.Other factors that determine the interest rate are job stability, income to debt ratio, and the equity in a home. The predictable monthly mortgage expense that fixed rate mortgage refinancing brings make it the most popular program.

In a situation where a homeowner prefers not to go in for a sale or refinance for his home loan this Fixed rate mortgages is best suited as they need to pay only a specific amount every month.A homeowner will always know what they will have to pay as the figure will remain the same over the loan's term.

There are a couple disadvantages of a fixed rate mortgage. For one, the interest rate is generally higher than the initial interest rate of an ARM.The ARM usually has a rate that is .5% to 1% lesser than the fixed rate loan. There is also a likelihood of the interest rates coming down after taking the loan. If this happens a homeowner will be paying more interest than the going rate. While the payment remains the same they would have paid a lower amount with the lower interest.

The rates greatly depend on the credit background. Because of this those with lower credit scores sometimes choose ARM's over fixed rate mortgage refinancing programs as the initial payments are lower.

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Know how beneficial Mortgage Refinancing or Fixed Rate Mortgage Refinancing can be.

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Tags:   Mortgage Refinancing, Fixed Rate Mortgage Refinancing

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Submitted : 2010-10-03    Word Count : 870    Times Viewed: 536