Types of AZ Refinance Mortgages Available to You
There are four different types of refi loans. Depending on your financial situation and your goal for refinancing will help you decide which is best for you.
1.The Adjustable (or Variable) Rate Mortgage (ARM).
This type of mortgage means that the interest rate is varied and “Adjusted” by the borrower, usually according to whatever rules they choose to apply. However, quite often the rate by which the interest varies is usually similar to a State or National banking index. Because these rates are adjustable by the bank or financial institute, they can go up at their discretion and you are liable to pay the corresponding increase in interest. BUT, to be competitive with other organizations and to win your business, they can equally be competitive.
The benefit with this type of deal is that when general interests rates are low, so will your refinance loan interest rates, so you pay less, or pay interest. This means you can pay less each month and have more money in your pocket, or you can pay the same but pay off more the capital sum (the amount you’ve borrowed).
2. The Fixed Rate Mortgage (FRM)
The fixed rate mortgage gives you a fixed rate for a fixed period of time. This could be the duration of the total loan period, but is more likely to be for a shorter period like 2, 3 or 5 years.
The benefit of this type of AZ refi is that you know exactly how much your repayments are every month. If general interest rates should sky rocket, you don’t have to worry about finding the extra interest each month. This makes budgeting much easier and makes life a little less stressful. The downside is that should the general interest rates fall, or the financial institute decide to drop their rates to be more competitive, you don’t receive the benefit of a lower payment each month. Your repayments stay exactly the same, which can be quite painful!
3. The Interest Only Mortgage
An interest only loan, is one where you pay, as by definition, only the interest due against the amount of money you have borrowed. Obviously the benefit of this is that your monthly payments are low, BUT you are not paying off any of the money you have borrowed. So at the end of the term, let’s say 25 years, you still owe the full amount you borrowed.
So why would you have such an AZ refi deal? Well you would do this if you had another way to pay off the loan on completion of the period. This might be in the form of other investments or you intend to downsize at retirement and release a lump of capital from your property which you would to pay off your debt. But if you intend to continue to live in your house and haven’t another way to organized to pay off the debt, then you put your home at risk of repossession.
These types of mortgages are more commonly used for investing in property rather than to buy your principle place of residence, otherwise known as your home. If a property is bought as an investment and is rented out, then you can sell it at the end of the term, pay off your debt and hopefully have money left over, while still living in you own home.
4. The Tracker Mortgage
This final type of AZ refi to consider is similar to the ARM in that the interest rate does vary, but unlike the ARM, this one usually only varies by the fluctuations of predefined rate to which it is tracking, like a federal monetary index. The lending body cannot increase the rate at their discretion, he rate is usually set by a percentage above the rate which it is tracking.
I guess you could say that this gives you some of the best features of both the ARM and the FRM.
If you are in the market for an AZ refinance deal, keep in mind that you literally have hundreds of different loans to choose from and most of them are variations of these different loan types. Many financial institutions will offer packages that mix these deals together For example you could be on a fixed rate for a period of time and then go to an ARM or Tracker for the duration of the loan.
Although it may seem that the best deal would be go for short term fixed rates and then keep refinancing, the lenders quite often have large exit penalties to tie you in, so read the small print. You may have also paid a large setup fee, so although you have a low fixed interest rate and pay a favorable monthly repayment, you should consider all the costs.
