Arizona  FHA Streamline Refinance.info 

What are the advantages and disadvantages to having a fixed rate mortgage?
 

A 30 year fixed mortgage is the most popular mortgage in America. This is because it provides borrowers with the certainty of knowing that their mortgage payments (p & i) will stay the same for the duration of the loan.

 

 

Pros                                                                                          Cons

The payment (p & i) never increases.                                       Borrowers do not pay less when rates improve without refinancing.

 

The rate stays the same.                                                          Borrower may pay a higher interest rate to have the rate fixed.

 

 

Borrowers often confuse the “fixed” element as a commitment that the entire mortgage payment will stay the same every month over the life of the loan. This is not true, since the taxes and insurance make up a portion of the escrow payment each month, and these charges change over the length of the loan, ALL fixed rate mortgages are subject to some payment changes.

 

In addition, many borrowers do not realize that they pay a premium (a higher interest rate) for the fixed rate mortgage. In the event that the borrowers select a fixed rate mortgage and do not stay the duration of the loan, they often pay more than they would have with an ARM (adjustable rate mortgage).

 

Few American homeowners keep their mortgage 30 years. Therfore, many borrowers pay al premium for a fixed rate mortgage that is never utilized. Nevertheless, when borrowers see a property as a long-term investment and they are concerned about payment affordability, the fixed rate mortgage may be a sound option.

 

What are the advantages and disadvantages to Adjustable Rate Mortgages (ARMs)?

 

When borrowers see a property as a “short to medium” term investment, an adjustable rate mortgage product may be a sound option.

 

Pros                                                                                      Cons

 

1. The borrowers receive a lower initial interest rate.           1. Markets changes may increase interest rates and mortgage payments.

 

2. The borrower often receives a lower initial payment.

 

3. Payments may drop when the markets improve.

 

4. Borrowers can streamline refinance into a fixed
    product without prepayment penalty.

 

 

ARMs are subject to base payment fluctuations (P&I) as well.

Instead of paying a premium (a higher interest rate) for a fixed rate mortgage, many borrowers are using ARMs to lower monthly payments and pay less money over the loan term. An ARM will have a lower rate than a fixed rate mortgage. When the interest rates are good, the ARM borrowers enjoy significant savings, but when the interest rates rise, the payments and interest rate may also increase.

 

ARMs are especially popular for borrowers that plan to move or refinance in less than 15 years. Why pay to secure a rate for a period longer than you plan to keep the loan?
 

There are many myths surrounding ARMs. Most of the horror stories originate from older loan products that were created before the current mortgage regulations. Today, few ARMs have the rapidly inflating payments that most fear. All new adjustable products have maximum monthly payment increases, maximum lifetime increases and most of all set adjustment intervals. T

 

his means that few ARMs today are structured to adjust more frequently than yearly or semi-annually. Borrowers won’t see their payments fluctuate from month to month. In actuality, borrowers with adjustable rate mortgages have historically paid less interest over the term of their loans.

 

Since few American homeowners keep their mortgages longer than 10 years, ARMs have grown in popularity. Now there are  adjustable rate mortgages that many reference as, “Temporarily Fixed Mortgages (TFMs)”. These hybrid adjustable mortgages provide the payment security of a “fixed” rate mortgage for a set number of years, and are then adjustable for the remaining term.

 

For example, a borrower can get a 3-Year Fixed, 5-Year Fixed or 10-Year Fixed FHA mortgage, pay the lower payment during the first 3 years, 5 years or 10 years and then pay a higher or lower payment, based upon market conditions for the remainder of the loan.

 

Since FHA and VA loans have no pre-payment penalties, in the event that markets severely worsen, borrowers can always use a streamline refinance to convert into a fixed product.