f you are in the market for mortgage refinancing then you should understand that there has never been a better time to consider an ARM or a 15 year fixed rate. According to Freddie Mac, the spread between 15 year fixed rates and 30 year rates is nearly as close together as it has ever been in history. But how do you compare mortgage rates and decide which term is the best for you?
According to a new survey done by Freddie Mac, 30 year fixed rate mortgages are coming with an average interest rate of 4.97 while 15 year fixed rate loans are being charged at an average of 4.34. Even more surprising is the fact that 5 year terms are being negotiated at an average of 4.19%. This basically means that anyone looking to borrow for a home should seriously consider all of their options. The rates for a 15 year fixed loan are creeping around historic lows, and have been running lower than 30 month rates for the past 6 months.
The Big Advantage of 15-Year Refinancing Term
Homeowners who have been dealing with a 30 year mortgage and are looking to refinance stand to benefit the most from a 15 year term. While every situation is different and each mortgage is unique, there is a chance that you will be able to negotiate a 15 year refinancing arrangement that offers the same payments that you are currently paying.
If you settled on a mortgage 10 years ago for $250,000 with an interest rate of 7% then your monthly payments would have been around $1,700. Now, if you were to refinance and agree to a 15 year term at 4.35% then your monthly payments would remain the same but allow you to pay off your loans faster.
Thus, the major advantage for refinancing is the fact that you could be making similar payments compared to what you pay now, but finish paying off your debt a few years earlier than expected.
Even if you signed into a mortgage earlier, you still have the option to refinance and pay off your loan a lot quicker by making payments that are just a few hundred dollars more per month. An increase in payments now can save thousands of dollars in interest in the long term.
Adjustable Rate Mortgages for Short Term Owners
Adjustable rate mortgages always need to be discussed and negotiated very carefully, but they do offer some benefits to a number of homeowners. An ARM will give you a fixed rate of interest for your mortgage for a range of 3 to 7 years (depending on the ARM structure), and then reset to a new rate that is based on the market at the time. If you are only planning on being in the home for a few years then this is a great strategy to use, considering you will be selling the home before a new, usually higher, rate comes into effect.
Other borrowers opt to take an even more sophisticated approach to the matter and use ARMs to get a low rate, and then simply refinance every time a new rate is about to be set. The principal payments are usually lower than any other term even though at present there is not much different in terms of the rates offered by ARMs and 15 year fixed rate terms.
A Word of Warning
Only those investing in a stable housing market should consider an adjustable rate mortgage, as it allows you to be sure that you will have at least a little home equity when you refinance or sell. If you determine that a 15 year refinance is a better choice, then you need to make sure that you can afford the higher payments in comparison to a 30 year fixed rate.
Also be sure to understand that you are going to need strong credit and a high credit score in order to qualify for either of these refinancing options, especially considering the current conditions of the housing market. If you have worked hard to make all of your payments, and kept your credit in tact then you should be able to find a number of loan options that make sense and meet your refinancing needs.