Adjustable Rate Refinancing Loan

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Adjustable Rate Mortgage Refinancing Explained

Adjustable rate refinancing loans can be a real blessing to homeowners under the hammer of increasing debt and the ever-rising cost of living. Depending on the current economic climate, chances are good you can get an adjustable rate loan to refinance your existing mortgage with a lower interest rate. While the initial low interest period is limited, it may buy you enough time to improve your financial position and, at the same time, free up cash you'd really like to have right now.

Many homeowners choose adjustable rate refinancing as a way of gaining sufficient funds to make immediate improvements on their homes, increasing long-term valuation or readying the property for quick sale. That way they recoup their investment and retire their mortgage before the end of the low initial adjustable rate period.

Putting an Adjustable Rate Refinancing Loan to Work

Depending on your refinancing loan, the adjustable rate mortgage typically maintains its initial low interest rate for one year. After that, depending on the so-called "reset intervals" agreed to in the mortgage, the rate will rise on a regular schedule.

The intervals may be set on an annual basis or occur more frequently. Your lender will adjust the rate based on a number of indicators or factors, including T-bill rates, economic contingencies, and ongoing interest rates. It pays for homeowners to shop around with available lenders. You may be able to arrange an adjustable rate loan cap -- a provision that limits the interval increases to a ceiling set in the initial loan agreement.

No matter how it all rolls out over time, homeowners can always seek new refinancing packages when the initial adjustable rate period closes or anytime thereafter. Say the interval rate increases at 2 or 3 percent. By the time the adjustable rate refinancing loan rises to the existing interest rate, you may have already benefited from the infusion of cash, or improved your financial status to where a fixed rate refinancing mortgage makes more sense.
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