Mortgage 101:

A mortgage, also referred to as a home loan, is a loan or lien on a property that has to be paid back according to certain terms. Understanding the benefits of different mortgage offerings can be a complex process. How do you figure it all out?

Mortgage Refinancing

Refinancing of a mortgage is when a borrower elects to repay of an older mortgage with a newer mortgage. Homeowners typically refinance for one of two reasons:

• To take advantage of lower interest rates
• To get cash out of their equity

Analyst predict over $1 trillion in ARMs resetting in 2007, and many of these ARMs are likely to be refinanced in order to obtain a lower rate.  However, before you decide to refinance you need factor in the cost of any pre-payment penalties that are likely to exist with your current mortgage.
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Adjustable- Rate Mortgages

Adjustable-rate mortgages (ARMs) are home loans that start with a lower interest rate and a lower monthly payment for a preset term, after which they are subject based on a standard financial index.  It is important to read all the details of your Adjustable Rate Mortgage proposal/loan agreement before signing any documents.  It also important to perform some due-diligence, consider speaking to a CPA or Financial Advisor, to ensure that a ARM is best for your situation.

• Adjustment periods.
  The Preset Term is an initial fixed-rate period during which the interest rate doesn't change.   For example, with a 3/1 ARM, your interest doesn’t fluctuate the first 3 years.  The second number is how often each year, after the preset term, that the rate can adjust each year over the life of the loan Typical ARMs are 10/1, 7/1, 5/1 and 3/1.
  
• Caps, ceilings, and floors.
  All ARMs have rate caps, also known as ceilings and floors. Caps decide how much the interest rate can increase or decrease at each adjustment period and over the life of the loan. Most ARMs have a lifetime cap that limits the amount your interest rate can increase over the life of your mortgage.  Sometimes these are referred to as minimum and maximum monthly payment instead of rate caps.

Because the initial interest rate is usually lower than a fixed-rate mortgage, your initial payments will be lower and you may qualify for a larger mortgage amount.  However, you need to be conscious of the fact that as the mortgage adjusts your monthly cost is likely to increase. Apply Now