Mortgage Refinance Rate
Mortgage refinance rates are determined by the financial situation and credit worthiness of the borrowers.
The first option is to go for ARMs or Adjustable Rate Mortgages. As the name suggests, ARM provides great flexibility in interest rates. ARM rates are generally lower than the traditional 15-40 year fixed rate loans. After the fixed rate term is completed, the rates begin to adjust, or in other words, rise and fall generally every six months or every year according to the value of an assigned index. There is always an element of risk in this plan, because the interest rates may increase. Since you are taking a risk, the lender tries to compensate you with a lower rate of interest and monthly payment during the initial fixed interest period. The interest rate is generally one percent cheaper.
If you are looking for a short term loan, say, of 10 years, ARM might be a good option. Some lenders offer many alluring features with ARMs such as redraw facilities, check books, the option to make lump sum payments or to transfer your loan to another property in the future. In case you draw a lump sum amount, you can amortize the payment over a fixed tenure. You have also the option to draw as much amount as you require for your immediate need. For this you are given a checkbook or a credit card. You pay interest only for the amount you draw. Your monthly repayments will be higher, if the interest rates go up, and you will get the benefit of reduced monthly repayments if the interest rates fall.
The second option invloves a fixed rate of interest on your mortgage refinance. As the name clarifies, the rate remains fixed during the period for which the loan has been taken. Fixed rate eliminates the risks of fluctuation or speculation in the rates of interest. Monthly loan repayments remain fixed. There are different term plans for fixed rates ranging from 5 years to 15 years with the proviso that the longer the period, the higher the premium or the rate of interest. This is because the lender also borrows the funds from different funding sources. Usually the lenders borrow the money on fixed terms to lend the money on fixed terms. The lenders, therefore, tend to place restrictions on the borrowers on extra payment during the stipulated fixed period. If the borrower wishes to pay back the whole loan before the expiry of the fixed period, he has to pay some penalty or break the costs in order to compensate the lender for the loss caused by the rate adjustments and also the administrative costs.
Most fixed rate arrangements do not allow the redraw facility. When the fixed term expires, either another fixed interest period is fixed or the loan reverts to the variable interest rate. Re-fixation of the interest rates also incurs additional costs to the borrower.
The third option is the capped rate loans. This provides an alternative to fixed rate interest. According to this plan, the rate of interest is not allowed to rise, but if the official rate falls, the borrower can pay the reduced rate. Some lenders may charge the borrower some premium on capped rate loans. At the expiry of the capped interest rate period, the interest rate may rise again. The borrower may have to pay additional costs to switch over to another plan.
Home Equity can also be mortgaged for refinancing further investments such as in buying second property or shares, clearing credit card debts, buying a car or making renovations in home and so on. Your home equity is your claim upon your home and it depends upon the amount of loan that you have paid off. The interest rates on equity mortgage are certainly lower than the rates that you pay on your investment or business loans. Moreover, the better the assets you place as collateral, the better interest rates you avail. You can borrow a lump sum amount against your equity.