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 www.law-ri.com.
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