Wednesday, October 17, 2007

Refinancing an Adjustable Rate Mortgage

A client/friend called me the other day. She was in a rather panicked state. She had bought her home (with another Realtor, I might add) and had used an Adjustable Rate Mortgage at the time. Her interest rate was set to begin increasing soon, and she was afraid that her monthly payment was going to go through the roof. She was so afraid of the higher payment that she was actually considering selling.

We took a more detailed look at her deed of trust and adjustable rider, both of which your Realtor can get for you from your county courthouse. Her rates were indeed about to begin increasing, but not by several hundred dollars per month as she had suspected. Instead, her payment would go up no more than $60 a month for the first year. They rate would only adjust once a year, as many rates do. They were to be adjusted in February of next year.

Since the interest rates for a fixed rate mortgage are so good, she was still interested in refinancing. However, again, when we looked closer at her mortgage documents, she would have been hit with a prepayment penalty if she refinanced prior to April.

Looking at her options, we decided that she would wait until April to refinance her home. At that time, we'll sit down together and look at the options her mortgage officer gives her, so I can help her make the best decision for the financial well-being of her family.

Moral: Read the fine print!

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