Wednesday, July 12, 2017

Should I Refinance A Fixed Rate Mortgage To A Variable Rate?

Years ago variable rate mortgage loans were popular, because the initial rate was much lower than what a borrower could obtain with a fixed rate loan. The way a variable rate mortgage works is that the rate starts off at one level, and varies as changes in the market dictate the need for a change. These types of loans can be beneficial if the rates are expected to drop, but when rates go up instead of down, your house payment also goes up. If the amount of increase in rate leads to an increase in the mortgage payment that is out of reach, homeowners can quickly fall behind on their mortgage obligation. When that happens, the risk of foreclosure is high.

If you have a fixed rate mortgage, you are guaranteed to have the same rate over the entire life or your loan. The benefit to this type of loan is that you never have to wonder if your payment will change, thus giving you the ability to create a budget with known expenses. This sounds good if you need to know what your payments will be, but it can be frustrating to pay your house payment at a higher rate than what the market shows. This scenario comes up more frequently than you might think, and if could have you wondering if you should refinance a fixed rate mortgage to a variable rate. If you do, here is what you can expect:

         Lower payments, at least at the outset and when the variable rate is lower than the fixed rate you have been paying.
         Changes to your payment amount, depending on where the government sets rates.
         An increase in the amount you have to pay each month if the rates go up drastically.
There are benefits to both types of mortgages, and if you opt to refinance for a variable rate because it is lower than your current fixed rate, be prepared for the changes. However, we realize that even when you are prepared for changes, sometimes those changes can be more than you anticipated. If that happens, you will have to make some important decisions about how to manage your money. If you become overwhelmed, one option available to you is to file for bankruptcy. Other options might be to do another refinance, or seek a modification of your mortgage loan. Whatever your need, we know how to help.
If you have more questions about money management, bankruptcy and debt, contact our office. We can be reached by phone, or online at

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