Refinancing Home Equity Loans and ARMs to Fixed Rate Terms
Tip! There are two types oh home equity loans, the home equity and the home equity line of credit. Conversely, home equity line of credit allows you to borrow money as you need it and pay the interest on the outstanding amount.
As the Federal Reserve Bank continues to push the interest rate higher, homeowners are watching their adjustable rate mortgage payments inch up as well. One of the ways to stop your rising mortgage payment is to refinance to a 30-year fixed rate mortgage.
"The plan is for the feds to keep raising rates until inflation comes down.' says mortgage broker Mike Johnson. "Expect higher interest rates through 2006 and then we should see the feds pulling back the rates." We've already noticed a trend of home prices dropping because the rising interest rates prevent new purchasers from jumping as quickly. A recent newspaper report shows some homeowners slashing prices simply to get a bite.
What seems odd to me, is that homeowners are accepting higher interest rates from a 30 year fixed rate mortgage for the security of locking in the interest rate. If their equity is taking a hit, some homeowners might try to refinance their entire debt to a secure fixed interest rate.
The interest rate averages for this week show home equity loans hovering around the same interest rate, while home Equity Line's of credit or HELOC's are moving upward, four points in the last week. "Consumer advocates agree that the best debt to refinance is the highest-cost and longest-term debt because refinancing those offers the most return for the effort."
Bankrate says,"First, some refinance after deciding to keep a house longer than they originally intended. Second, some refinance because it's easier to make firm plans for the future if their mortgage rates can't fluctuate. Finally, some have simply changed their minds about mortgage rates, and think they're headed up for a long time."
A shorter term fixed rate mortgage could also help you rebuild the equity already pulled from your home. The conversion from ARM to FRM could help you avoid a balloon payment, and if your property values have actually risen, you might be able to pull even more equity out of your home in the process.
