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Need Flexibility? Do Your Homework and Find Out about Mortgage Refinancing

by Gabriel  Traverso
Mortgage Directory Columnist

Did you know that you can refinance into a new mortgage that lets you choose how you make your payments each month? These new mortgage products are excellent ways to leverage your monthly cash flow, but they aren't for everyone.

How Do These Mortgages Work?

The traditional mortgage is a fixed-rate home loan that has a set rate that doesn't change for the life of the loan. This is an excellent tool for homeowners who want predictability. Homeowners looking for flexible payment plans can now refinance with new home loans that are essentially a hybrid of the adjustable rate mortgage (ARM), an interest only mortgage, and a traditional fixed-rate loan. Each lender's program is a little different, but as an example one lender offers the choice between a minimum payment, an interest only payment, and a payment based on a 15- or 30-year amortization schedule.

Refinancing: Make the Right Choice for You

These new loan products are perfect refinance options for some homeowners, but not all. How do you know if an option ARM or interest only refinancing is a good choice for you? You'll have to do some homework to answer that question. First, talk with your mortgage lender to get information about their refinance choices. Usually these loans have a low introductory rate and then the rates adjust. Find out if that's the case and keep asking questions until you understand how the refinance works. Then go home and go over your budget, your plan, and your cash flow. Will you be able to afford the payments if the rate goes up? Do you plan to stay in the home a few years or ten or twenty? Keep in mind these loans are usually a short-term solution to cash flow problems.

Before you sign the paperwork, make sure you've considered all possibilities. Don't bet on the future if there are unknown quantities--maybe you'll get that raise. If you check everything and it looks good, then go ahead and refinance!

HSH Associates

About the Author
Gabriel Traverso is a freelance writer, independent musician, and artist. He resides in Reno, NV.

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