Traditional Mortgages are Back in Style

The housing boom of recent years has allowed many Americans to purchase homes. Many new homeowners used non-traditional mortgages such as interest only and option loans to finance their purchases. Interest rates are still at historically low levels; however, mortgage interest rates are on the rise. As a result of recent interest hikes homeowners with adjustable interest rates are seeing their monthly payments go up. Refinancing to a fixed interest will assure your monthly payments remain constant.

One reason homeowners may put off refinancing is due to the uncertainty of moving within the next few years. In cases like this a hybrid adjustable rate mortgage offers a fixed interest rate for as long as the first five years and an adjustable interest rate after that. By negotiating for a hybrid mortgage that does not have prepayment penalties you could easily refinance or sell your home at the end of the fixed rate period. A hybrid adjustable rate mortgage allows you to take advantage of low interest rates and have the flexibility of needing to sell.

If you plan on living in your home and have an adjustable rate mortgage such as an option or interest-only mortgage you should consider refinancing to a traditional fixed rate mortgage. Interest only and option mortgages are considered to be extremely risky mortgages. If you are making the minimum payment on an option mortgage your mortgage is actually growing instead of being paid down. Interest only loans have the advantage of low monthly payments; however, you are not paying any of the loan principal back. Both of these loans have adjustable interest rates and when rates go up you can find yourself quickly under water.

Traditional fixed 15 or 30 year mortgages offer the safety and security of locking in your interest rate. Interest rates are still at historically low levels; now is the time to refinance your riskier adjustable rate mortgages.

Louie Latour has twenty years of experience in the mortgage industry as a mortgage broker. He is the owner of Mortgage Refinance Advisor, a mortgage resource site devoted to saving homeowners money with a free guidebook Five Things You Need to Know Before Refinancing a Mortgage. http://www.refiadvisor.com

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