How do I Refinance My Home? A Personal Look at Home Refinance.
Three years ago, I decided to buy my new home using a mortgage program that my loan officer called a three-year ARM. ARM, I found out, stood for adjustable rate mortgage, and that it was a three-year ARM meant I could make interest-only payments for the first three years before my payment amount would increase to principal-and-interest payments. Now that I have only a few months of interest-only payments left, I have decided that instead of putting a much bigger check in the mail each month, I'd rather refinance my home. I'm also worried about rising interest rates and would rather lock in a fixed rate.
The last time I was looking to refinance my home, I had a much different story. Seven years ago, I bought my first starter home at a bargain price. Come to think of it, I paid about one-fourth as much for that starter home as I did for my new home. Two years into that first mortgage, I wanted to pay off some debt and thought I could reduce my monthly payments by refinancing and cutting out my mortgage insurance. When I consulted a loan officer, I found out that not only could I refinance into a new loan without mortgage insurance, but my property value had increased quite a bit and I would be eligible to take cash out at the closing table if I wanted. My new payment amount would be lower for several reasons: I'd been paying toward the principal amount of the loan, my new interest rate was lower, and I no longer had to pay mortgage insurance.
This time around, I need to refinance my
home to avoid having my payments increasing to principal-and-interest payments that I can't afford. Luckily, I have gotten a promotion and a raise at work, and my loan officer says there are many mortgage products available that will allow me to keep my monthly payments at a manageable level. I have the option to refinance into another three- or five-year ARM product, but I really would like to start paying more toward principal. While those programs allow a borrower like me to make principal-and-interest payments in any month they choose, I don't trust myself to put extra money toward my mortgage. I'd rather have just one payment option that will force me to stick to a schedule of building equity.
This time, my home's value hasn't gone up, either. In fact, homes in my neighborhood have been selling for a little less than they were a few years ago, and my neighbor even had to offer $5000 to her buyers to close the deal on her home. Refinancing my home seems like a much smarter choice right now, especially since I haven't yet built up any equity in it.
My loan officer has mentioned a 40-year, fixed rate mortgage that will meet my needs. He tells me 40-year products are gaining in popularity right now since they offer lower payments and are available with fixed rates that won't increase. Another option he mentioned was a 30-year fixed rate mortgage with a 10-year interest-only payment period, but again, it would be up to me to make out my check for more if I wanted to build equity, and I don't want to have to discipline myself that way.
In fact, that forty-year product is looking better and better to me. I still think of this as my new home, and I plan on living here for years to come. With the raise I got at work, I'm ready to refinance my home and start building equity. This is the program that will allow me to meet that goal, write out a check for the same amount each month, and make the most of this home-refinance opportunity.