Tuesday, July 26, 2011

The Pro's of the aRM...


While everyone always seems to focus on mortgage payments adjusting higher, there are a number of reasons why a mortgage payment may decrease.
No really, there are, so let’s take a look shall we.

Mortgage Payments Decrease on ARMs

If you have an adjustable-rate mortgage, there’s a possibility the interest rate can adjust both up and down.

You may have seen that now infamous interest rate reset chart, the one that shows billions of dollars worth of mortgages resetting from their fixed-rate period into their adjustable period.

Well, the damage may not be as bad as it appears because many of the mortgage indexes tied to these loans are rock bottom.

As a result, some homeowners who stayed in these seemingly “exploding ARMs” may actually see their mortgage payment fall.

When You Pay Down Your Mortgage

If you decide to pay off a large chunk of your mortgage, you can ask the mortgage lender to recast your loan (if they allow it).

This essentially re-amortizes the mortgage so the new, smaller balance is broken down over the existing months left on the loan.
Your mortgage payment is adjusted lower to reflect the smaller principal balance, but your mortgage rate doesn’t change.

While this could increase household cash flow, you may be better suited to pay off your mortgage early by making your old payment despite the lower balance.
Refinance to a Lower Rate

Here’s a no-brainer. If you want a lower mortgage payment, look into a rate and term
refinance.

Because mortgage rates are still very low, your mortgage payment will probably decrease if you refinance now.
(When to refinance a mortgage?)

Shop Your Insurance, Look Into a Tax Reassessment
Finally, be sure to shop your homeowner’s insurance, as it is typically included in your mortgage payment.

If you can snag a lower premium, your mortgage payment will decrease as a result.
Also look into a tax reassessment of your home.
Property values have been on the decline, so you may be able to save some money on property taxes by asking your county recorder’s office to reassess your property.
Remember, a mortgage payment is typically expressed as PITI, which stands for principal, interest, taxes, and insurance.
So address each component to save money on your housing costs.