One of the most demanding aspects of purchasing a home is figuring out which loan will work best for you. In many instances, you may need the lower interest rate of an adjustable rate mortgage to get into your house. However, over time you might find that you want to switch to a fixed rate mortgage for its stability. If you are in this situation yourself, there is a solution that can help. With a cash–out refinance, you can renegotiate your loan terms so that you can switch from an adjustable rate mortgage to a fixed rate mortgage.
The experts at BrightPath will provide advice and insights to find the right mortgage that fits your needs.
What is an Adjustable Rate Mortgage?
An adjustable rate mortgage is a type of loan in which the interest rate changes throughout the life of the mortgage. While there is an introductory period where the interest will be fixed, eventually there will be adjustments to the rate that could cause it to rise or fall based on the index the loan is associated with. This usually happens on an annual basis and occurs once every five years.
Many adjustable rate mortgages have a lower starting interest rate, which can be beneficial to buyers that do not have the savings or income to afford larger loan payments. Also, buyers that intend on living in the property for less than ten years find it to be an attractive option because they can sell before the interest rates increase. And while there are rate caps to limit how much the mortgage can rise over set periods of time, these adjustments can be unpredictable and could potentially end up costing you more money over time.
What is a Fixed Rate Mortgage?
A fixed rate mortgage is a type of loan in which the principal payments stay the same throughout the entire term of the mortgage. While there are many options for setting your loan terms, 15 year fixed rate mortgages and 30 year fixed rate mortgages tend to be the most popular of these fixed loan types.
One of the greatest advantages to choosing a fixed rate mortgage is that your payments will remain consistent throughout the life of the loan, even if the interest rates fluctuate. This makes budgeting and planning for your future much easier than with an adjustable rate mortgage. As a result, they are a great option if you are using your property as an investment or intend on living in your home for an extended period.
Using a Cash–Out Refinance to Change Your Mortgage Terms
In many instances, those who needed the lower interest rate of an adjustable rate mortgage to get into their home may want to make the switch to a fixed rate mortgage for the stability of its set payments. If you are interested in doing this yourself, the best way is to get a cash–out refinance. When you cash out on a refinance, you can use the current value of your property to renegotiate your loan term. The new rate will be higher than what you owe on your current mortgage and the difference in these amounts will be given to you in cash. And while this is great because the cash can be used in a variety of ways, going through this process also gives you the opportunity to update your rate terms from an adjustable rate mortgage to a fixed rate mortgage.
Get the Mortgage Terms You Need with a Cash-Out Refinance
If you have decided you would like to switch your mortgage terms by using a cash-out refinance, the experts at BrightPath are here to help. Using their unparalleled knowledge and skills, they will be able to update your loan terms to fit your budget and your plans for tomorrow.
Contact us today to schedule a free consultation.
At BrightPath, we will work hard to give you the optimal outcomes you deserve.