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Mortgage Refinance Loan
What I Should Know About Mortgage Refinance Loan
Before opting for A mortgage refinance loan, it is always better that you take into consideration your financial condition and requirement. There are plenty of options available with mortgage refinance loan so you need to be extra careful when selecting one. Ideally, you should choose a mortgage refinance loan with monthly installment set on the basis of your financial condition so there is no pressure on you in terms of repayment.
Fixed or Adjustable Interest Rates
Before applying for a mortgage refinance, you need to be clear what kind of loan package you are looking for. You can go for a loan with fixed or adjustable interest rates. Each has advantages and disadvantages but, in the long run, fixed interest rates are a much better option.
The main advantage of fixed interest rates is that your monthly installment will remain the same throughout the duration of the loan. With no increase in monthly installments, you will be able to manage your finances better.
Adjustable interest rates are perfect for individuals who have a comprehensive knowledge of the market condition. With adjustable interest rates, you can save plenty of money if you predict the market condition correctly. As there is lots of guesswork involved with adjustable interest rates, it is not a good option for people with bad credit. Any increase in interest rates can have an impact on your monthly installment. If you are not able to pay your installment on time, your credit rating is going to deteriorate.
Mortgage Refinance Loan
If you are overburdened with monthly installments, a mortgage refinance loan can help you immensely. By taking out a mortgage refinance loan, you will only deal with one lender. Another good thing about a mortgage refinance loan is that it plays a prominent part in improving your credit score.
What makes a mortgage refinance loan different from other loan packages is that you get an extended time period for repayment. This is useful for individuals who are struggling financially and are looking for ways to improve their financial condition. A mortgage refinance loan is also quite beneficial for individuals who have taken out loans at high interest rates and are looking to reduce the rates. With a mortgage refinance loan, you are going to get a grace period during which you do not need to pay monthly installments.
Short-term Loans
Mortgage refinance loan is the way to go if you are interested in getting short-term loans. These loans give you an opportunity to save some money in the form of interest rates. When you go for short-term loans, you are only going to pay interest rates for a short span of time which decreases the total amount you will spend on the loan. Further, your monthly installment is going to be set on the basis of your monthly source of income so you will not feel any unnecessary stress.
Finding a Lender
You will not face any problem in finding a lender for a mortgage refinance loan as the market is flooded with lenders who exclusively deal with these loan packages. Before choosing any lender, make sure you check their market reputation. There is no point signing an agreement with lenders that charge high interest rates and do not give you flexibility in terms of repayment schedule.
Interest Only Loan Rate
Interest only (IO) loans are loans that provide the option to pay just the interest on a loan for an initial period of repayment, say 5 years or 10 years. It also gives the choice of paying the interest plus as much principal as you want. The main advantage of this loan is the low interest you pay each month even though the interest rate is the same as that on conventional loans. IO loans also help to control the monthly payment and cash flow each month. After the initial period, the repayments are raised to fully amortized levels. These loans allow for a large principle prepayment if desired.
Interest only loans can be fixed-rate mortgages (FRM) or adjustable-rate mortgages (ARM). Though it is generally felt that interest only loans have lower interest rates, this is not true. In fact, they may have higher rates, because the risk is greater in IO loans. While going for an interest only loan with adjustable rates, it is very important to consider what the future interest rates are likely to be. This is because repayment in the future will consist of both interest as well as the principle.
For interest only loans based on the adjustable mortgage rates, the interest rate is calculated and changed based on the index rate. The Index rate depends on the average of Interbank offered rates for one year US dollar –denominated deposits in the LIBOR (London Interbank Offered Rate). This Index is published in the Wall Street Journal. The interest rate is adjusted according to the index plus the margin (rounded to the nearest 1/8 percentage point). The interest rate cannot change by more than 5.00 percentage points than the initial interest rate over the whole term of the loan. Similarly, it cannot decrease less than the margin on the loan. Interest only loan products can be 30, 20, 15 or 10 year fixed mortgage with varying adjustable rates.
With increasing real estate prices, interest-only loans are becoming a preferred option for many. There are also many lending companies that are giving attractive options on interest-only loans. Information about interest-only loans is available on the Internet. They also contain easy-to-use interest only calculators that tell you the kind of repayments you will have to make. The current interest rates on interest only loans are also available on the Internet.